Azrak v Carter Enters. LLC

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Azrak v Carter Enters. LLC 2021 NY Slip Op 32413(U) November 19, 2021 Supreme Court, Kings County Docket Number: 510149/15 Judge: Lawrence S. Knipel 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] KINGS COUNTY CLERK 11/22/2021 10:10 AM NYSCEF DOC. NO. 921 INDEX NO. 510149/2015 RECEIVED NYSCEF: 11/22/2021 At an IAS Tenn, Part Comrri 4 of the Supreme .Courtofthc State of New York, held in and for the County of Kings, at the Courthouse, at 360 Adams Street, Brooklyn; NewYork, on the 19 th day of November, 2021. PRES ENT: HON. LA WRENCE KNIPEL,. Justice. ·- -. - -·- - - - - -. - - - -· -. - - -. - -· - - - - - - -· - - - - -· - - -X DIANA AZR.AK, individually, and oh behalfof, CARTER lNDUSTRlES,JNC. and.JOSEPH·CoI:IEN and DAVID NAKASH, as Administrators of the Estate of MARVINAZRAK, and on behalf of CARTER INDUSTRfES, INC,, Plaintiffs, - against - Index No. 510149/15 CARTER ENTERPRISES LLC, SAUL WOLF, CARTER INDl)STRTES., INC., CHAU\tl WOLF, ABRAHAM BACKENROTHand EPHRAIMADLER, Defendants. ·- - ·- - - - - - - - - . , . , - - - - - - - - - . , .- . , - . , .- - - - - - -.. , - - -X The fol!owinge-filcd papers read hetein: Notice of Motion/Order to Show Cause/ Petition/Cross Motion and Affidavits {Affirmations) Annexed_._ _ Opposing Affidavit (A ffirma:tidn) _ _ NYSCEF Dot Nos. 600~610 605-610, 6 I 2 605-6 LO, 614~615 617 ....,.6=2-'-7-=6=58"'-·_ _.oc:_67'--'9'----'-71'-"0'------'7'""'3=1_,-7'-"6=2_ __,8=2:.!.7--"-8=5=-6 _ _ _ _ _ _ Reply Affidavit (Affirination)____ 864 867~ 870 Upon the foregoing pc:ipers in this shareholder derivative action 1 defendant Ca:rtet Industries, hie. (Garter Industries) .moves On motion ·sequ~hce [mot. seq.] 27) for an order, pursuant to CPLR 3211 (a) ( 1), (a) (3), (a) (5) and (a) (7), dismissing all causes of action. asserted .against. it .in the amended complaint with. prejudice. Defendants Chaim 1 of 13 [*FILED: 2] KINGS COUNTY CLERK 11/22/2021 10:10 AM NYSCEF DOC. NO. 921 INDEX NO. 510149/2015 RECEIVED NYSCEF: 11/22/2021 Wolf and Carter Enterprises I.LC (Carter Enterprises) collectively move (in mot. seq. 28} for an order, pursuant to CPLR 321 l (a) (1), (a) (3), (a) (5) and (a) (7), dismissing all causes of action asserted against them in the amended complaint with prejudice. Defendant Saul Wolf moves (in mot. seq. 29) for an order, pursuant to CPLR 3211 (a) (l); (a) (3), (a) (5) and (a) (7), dis1nissing all causes ofaction asserted against him in the amended complaint with prejudice, "Putative Defendants' 1 Abraham Backenroth {Backenroth) and Ephraim Adler (Adler) move (in mot. seq. 30) for an order (l) dismissing or striking all claims asserted against "the Non-Parties," pursuant to CPLR 3025 and 3211, and (2) imposing sanction against plaintiffs and their counsel "for filing a frivolous pleading that purports to add the Putative Defendants without leave of Court[,]"pursuant to 22 NYCRR § 130-J .1 (Part 130). Background This Share/10/der DerivativeAt:tion On August 17, 2015; Diana Azrak commenced this shareholder derivative action seeking to obtain an irit_erest in Carter Industries and damages because defendants allegedly misappropriated business opportunities front Carter Industries. Carter Industries was allegedly formed in l 995by Saul Wolf and Marvin Azrak, Diana Azrak's late husband; to manufacture military and other tactical garrnents for the United States military. The original co1nplaint alleged that Saul Wolfind MarvinAzrakeach held 50% 2 2 of 13 [*FILED: 3] KINGS COUNTY CLERK 11/22/2021 10:10 AM NYSCEF DOC. NO. 921 INDEX NO. 510149/2015 RECEIVED NYSCEF: 11/22/2021 -of the issued -Shares ·of "Carter lridus_tries, and that, after Marvin Az.rak pass~d away on January 22, 2008, Diana Azrak became the owner of his 50o/.o share. _in Carte_r IJJdti~tri_es. The complaint alleged that, since 2008, Saul Wolf and his son, Chaim Woli; ha.vc been using· Ca.rter· Entcrpds¢s, a competing busin_ess entity controlled by them; to ·usurp Carter Industries' corporate_ business opportunities. The original complaint -also alleged that on or about May 25, 2007, Saul Wolf unilaterally• .and without Marvin Azrak's .l~n_owledge or consent, transferred ti t1 e -to the C artcr factory from Carter Industries to his brother's own charifap.le entity. for. no consi.d~ration. The otiglnaJ co11tplaint assertecl nine -causes of ~ction: ( l) the first cause of action against Saul Wolf for breach of his fiduciary duties; (2) thd sf!cond cause of action for a constructive trust over Carter Enterprises anq· Saul Wolfs chai'itable entities; (3) the third .cause. :Qf action a..gainst Carter -Industries and Carter Enterprises fot an ·accounting; (4) the fourth cause -of action for an .injunc_tion enjoining Saul Wolf, Chaim Wolf .and Carter Enterprises from using Carter Industries' identity, trademark, reputation, intellectual property and good-win; (5} the- fifth cause of action for an· injunction and. da~nages from Saul Walt: Chaim Wolf and -Carter Enterprises for .trademark infringement; cause of actidn agains_t Saul w·ou: Chaim Wo.lf and Carter Enterprises (6) the-sixth for violation of New York General Business Law (GBL) §§ 360-1 and 360-m; (7) the seventh cause of action againsLSaul ·wolf, :Chahn Wolf and Carter Enterprises for-unfair competition;: (8) the eighth cause ·of aGtion against Saui. Wolf, Chaini ·Wolf, Carter Ehterptises ·and the J 3 of 13 [*FILED: 4] KINGS COUNTY CLERK 11/22/2021 10:10 AM NYSCEF DOC. NO. 921 INDEX NO. 510149/2015 RECEIVED NYSCEF: 11/22/2021 charitable entities fot unjust enrichment; and (9) the ninth cause of action to undo the fraudulent transfer of the Carter factory. On or about October 21, 2015; defendants filed a pre-answer motion tn dismiss. By a May lJ, 2016 decision and order, the court (Rothenberg, J .) dismissed the second cause of action for a constmctive trust over Carter Enterprises and Saul Wolf's charitable entities, the eighth cause of action asserted against Saul Wolf, Chain1 Wo1C Carter Enterprises and the charitable entities for unjust enrichment, and the ninth cause ofaction to rescind the May 2007 Transfer of the Carter Factory based upon a lack of consideration and fraud (NYSCEF Doc No. ~0). On December 2, 2016, defendants answered the original complaint, denied that Diana Azrak owned 50% of the issued and outstanding shares of Carter Industries and asserted an affirmative defense challenging Diana Azrak;s standing to prosecute this action. After issue was j oirted, discovery ensued. In response to a series uf discovery motions, the court (Rothenberg, J.) issued orders on July 12, 2018 and March 6, 2019, bifurcating this action so that the issue of Diana Azrak's alleged ownership interest in Carter Industries Would be decided fitst. Azrak's Motion Fot Leave To Amend On October IO, 2019, Diana Azrnk moved (in mot seq. 20) for leave to amend the co1rtplairi,t to add Marvin Azrak's estate as a party plaintiff,. to aµd Backenroth and Adler as party defendants, to aµd .1:1dditional allegations·and to assert aqditional causes of action 4 4 of 13 [*FILED: 5] KINGS COUNTY CLERK 11/22/2021 10:10 AM NYSCEF DOC. NO. 921 INDEX NO. 510149/2015 RECEIVED NYSCEF: 11/22/2021 against the original defendants and Backcnroth and Adler. 1 Azrak also sought to modify the court's prior orders that bifurcated the action and to compel defendants to produce docu1nents:. Defendant Carter Industries cross..:niovcd to compel discovery frorn Azrak. M.eartwhile, by a Deccn1ber 24, 2019 "Transfer Order," this action Was administratively transferred from Justice Rothenberg (in Part 35) to Justice Knipe! (in CommercialPart 4}. By a March 13, 2020 decision and order, this court lmld that branch of Diana Azrak's motion (mot. seq. 20) seeking to amend the complaint in abeyance, denied that branch of her motion seeking to modify Justice Rothcnberg's July 12, 2018 and March 6, 2019 orders, adhered to the court's prior order$ and directed a ''bifurcated trial solely on the issue of Diana Azrak's ownership in Carter Industl'ies, to commence on 6,..16-20." This court also ordered that the parties "conduct discovery w/in 90 days hereof only on the ownership issue, in anticipation of the bifurcated trial." By another March 13, 2020 decision and order, this court qrdcrcd the parties to produce outstanding discovery "as related to the claimed ownership ofplaintiff, Diana Azrak, of Cai1cr Industries ... '' and thatdepositio11s>shall be completed by May4, 2020. On April 5, 2021, Diana Azrak moved (in mot. seq. 25), by order to show caqse, for an order, pursuant to CPLR 1002 (a), 1003, 2001 and 3025 (b), "amending the Complaint to, inter alia, add the Estate of Marvin Azrak as a party plaintiff, and atnf!hding the caption to reflect same, as requested in Motion Sequence, Number 20 ... '' .See proposed amended complaint; NYSCEF Doc No. 400. 1 5 5 of 13 [*FILED: 6] KINGS COUNTY CLERK 11/22/2021 10:10 AM NYSCEF DOC. NO. 921 INDEX NO. 510149/2015 RECEIVED NYSCEF: 11/22/2021 and compellin g defendant s Salli Wolf' and Carter-Industries to ptodµce discovery. Tlte Court'sAp r/128, 2021Amended Decision and Or_der By an Apr:il 28,. 2021 amend~d decision and order, this.court. held that: "[b]y order d~ted 7/12/18 Justice Rothenber g directed a biturcated trial with the issue of ownership to bq tried first With the benefit of hindsight, it now appeats that said bifurcatio n was improvident;. and that the granting of plaintiff's motioiz to add the estate ofM[arvin ] Azrak would large[y·n.wot out the need lo bifurcate. "Accordin gly, the instant OSC [by Diana Azrak] is granted only to the . extenttha t thG· motion previously held 1n abeyance to add the Estate of .Marvin Azrak as a pariy plainfif/ is granted. This rp.attet shall proc~ed unbifi.trcated" (emph~.sis added). Thus.this co1.nt o!'lly granted Diana Azrak leave to amend the complaint t.o add the Estate of Marvin Azrak as. a party plaintiff and did not grant Diana Azrak lea.vc to amend the complaint to add her otlwr proposed amendmen ts (additiona l factual allegations; additional causes of.action and Backenrdt h arid Adler as additional party defendants}. Ort June 2., 2021, .Diana Azrak appealed from this courCs April 28, 2021 amended decision. an.d order. Tlie Amended Complt1il1t Meanwhil e, <>n May 3, 202:I, Diana Aztak filed a verified· amended complaint adding Joseph Cohen and David Nakash, as Adnii11islrators of the Estate of Marvin Azrak and on behalf or· Cmter Indµstrics, .as party plaintiffs,. as authorized .bY tbc Aptil 2021 order. Regarding the Estate, the amended ~omplaint alleges. tha:v•Mar vin Azrak pa.ssed 6 6 of 13 [*FILED: 7] KINGS COUNTY CLERK 11/22/2021 10:10 AM NYSCEF DOC. NO. 921 INDEX NO. 510149/2015 RECEIVED NYSCEF: 11/22/2021 away prematurely in 2008;·and.his ·interest in Carter Industdes is now=.owned together by Plaintiffs, who are his. widow Diana Azrak and his Estatebr "Joseph Cohen and David Nakash are residents oTNew York State and arc the duly appointed administrators of the Estate .ofMarvih Azrak (the 'Estate' :and with D. Azrak, 'Plaintiffs'), which owns at least Twcntya.Five· (25%) of the issued mtd outstanding ··shares .of Caner Industries" ·"[a]IiY ownership interest in C~utcr Industries which Marvin Azrak held upon his death pas.sect to the Estate, where it remains" and "[t]ogether~ Pla1ntiITs hold a 50% ownership intetest in Carter. Industrie.s" (amended con1plaiptat ,r,i 1, 4, 20.and 21). . Importantly, the vcdf:ied amended coinplahil also c·ontains addjfional factual allegations, the addition of BackchMth and Adler as party defendants. and additional causes of aption against the original defendants and Backemoth and Adiet which this court did not grant Dian:a AZrak leav~ fo assert. Essentially, with the exception of the: title .of the document, plaintiffs' amended complaiiit (NYSCEF Doc No. 591) is identical to Diana Azrak's proposed amended complaint (NYSCEF Doc No. 400), the majority of which was considered and rejected by this court in the•·April 28, 202i amended decision .and order. The amended coinplaint alleges thatBackcnroth and Adler each claim to own 25% of the shares of Carter Industries because in March 2017, during the pendency of this action, Satil Wolf sold his· shares to: them. "the amended .complafot alleges that Saul Wolf still mns Carter Industries, and tli.at the· sale was a sham transaction inteiided to shield 7 7 of 13 [*FILED: 8] KINGS COUNTY CLERK 11/22/2021 10:10 AM NYSCEF DOC. NO. 921 INDEX NO. 510149/2015 RECEIVED NYSCEF: 11/22/2021 Saul Wolf -fron1 liability. 1'he afuertded :complaint asserts· tl1e following twelve. causes of action: (1) the first cause of action against Saul Wolf for breach of fiduciary duty; (2) the second cause of.actior1 against Saul Wolf, Carter Industries, Backentot h and Adler for an accounting;_ (3).the third caµse qf-_action against Carter· Industries for a constructi ve trust; (4) the. fourth cause of action against Satil Wolf; Chaim Wolf and Carter Enterprise s for use of-Carter Industries ' name with intent to deceive in violation ofGBJ, § 133; (5) the fifth cause of action agaim;t Saul Wolf, Chaim Wolf and Carter Enterprise s for i11fringement of Carter Industries ' _protected. trade name and 1nark in-violation of GBL ·_§§ 360,;k and 360-i11;(6.) the.sixth cause of action aga,inst Saul Wolf, Chaim···wolfand. Caiter Enterprises for injmy to Cartet Industries ' hushiess· reputation in violation of 360-'l and 360-m; (7) the seventh cause of action against GBL §§ Saul Wolf, Chaim Wolf and Carter Entetprise s for unfair competitio n; (8) the eight cause of action against Saul Waif, . . Chaim Wolf and. Carter Enterprise s for w1just cn_richment; (9). thc ninth cause of action against Backenr.oth and Adler for breach of fiduciary d11ty; (10.) the-tenth cause otaction against Bacl<enroth and Adler for aiding and abetting breach of fiduciary duty; (11) the eleventh cause of action against Backenrot h and Adier for aiding and abetting unfair competition; and (12} the twelfth cause of action against Backenrot h and Adler fot tortious- interferen ce with business relations. De/~1ida11"t$ '.lnsttmi Motions On June 14, 2021, the original defendant s iiicd three p1'e-answer motions to 8 8 of 13 [*FILED: 9] KINGS COUNTY CLERK 11/22/2021 10:10 AM NYSCEF DOC. NO. 921 INDEX NO. 510149/2015 RECEIVED NYSCEF: 11/22/2021 dismiss the altlended complaint: (l) Carter Industries fjled a motion to dismiss the second and third causes of action asserted against it; (2) Chaim Wolf and Carter Enterprises co11ectiveJy filed a motion to dismiss the fourth through eighth causes of action asserted against them; and (3) Saul Wolf filed a motion to dismiss the first, second, fourth, filth; sixth, seventh and eighth causes of action a.sscrted against him. Backenroth and Adler also collectively moved to dismiss or strike the claims assertcq against them in the amended complaint (second and ninth through twelfth causes of action) and for the imposition of Part 130 sanctions against Diana Azrak for ''filing a frivolous pleading that purports to add the Putative Defendants without leave ofCourt ... " Defendants asserted several substantive grounds to dismi.ss the causes of action asserted in the amended complaint. In addition, defendants argued that Azrak's addition of new factual allegations, new causes of action and two new party defendants, Backenroth and Adler, exceeded the scope of the court's April 28, 2021 amended decision and order, and should,therefore; be stricken . . Discussion CPLR 1003 provides, in relevant part, that "[p]arties maybe added at any stage of the action by leave of court. or by stipulation of all parties who have appeared Additionally, CPLR 3025 (b) provides, in relevant part, that: "[a] party may amend his or her pleading, or supplement it by s_etting froth additional or subsequent transactions or occurrences, at any time by leave of court or by stipulation of all parties . . . Any motion to amend or supplement pleadings 9 9 of 13 " [*FILED: 10] KINGS COUNTY CLERK 11/22/2021 10:10 AM NYSCEF DOC. NO. 921 INDEX NO. 510149/2015 RECEIVED NYSCEF: 11/22/2021 shall be accompanied by the prqpos ed amend ed or supple mented pleadi ng clearly showing the changes or additio ns to be made to the pleadi ng" (emphasis added). New York courts, irn;luding the Second Depart ment and the Court of Appea ls, have held that "[a] plaintifCs failure to seek leave pursua nt to CPLR 1003 to add a new defend ant is a jurisdi ctiona l defect, and an amend ed c;omplaint that is not filed in accordance witllC PLR 1003 and30 25 is a legal m1llity" (Hulse v Wirth, 175 AD3d 1276, 1279 [2d Dept 20J9J; see also Perez v Param ount Cmnmunications, Inc., 92 NY2d 749, 753 [l999J [holdin g that '"(t)hc joinde r of an additio nal defend ant by the filing of a supplemental summo ns and aniend cd complaint may be accom plishe d only With prior judicial permission, and noncompliance renders the pleaqi ngsjur isdicti onally defective"]; Nikolic v Fed'n Emp. & Guidance Serv., inc., 18 AD3d 522, $24 (2d Dept 2005] [holding that "the plainti ff's service ofthc arnendcd summons and coin plaint was a nullity since he served these papers withou t leave of comi or a stipulation of the parties in accord ance with CPLR 3025 (b)]; Ospina v VIMM Corp., 203 AD2d 440~ 441 [2d Dept 19941 [holding that ''(t)hc plainti ff's failure to seek leave pursua nt to CPLR 3025 (b) and CPLR 1OtB to serve an amended summo ns and compl aint purporting to join VIMM Machine, lqc., as a party defend ant is a jurisdiction<ll defect"]; Yonker v Amal Motorc ycles, Inc., 161 AD2d 638, 638 [2d Dept 1990] [holding that where "(t)he plainti ff failed to obtain leave pursua nt to CPLR 3025 (b} and 1003 to serve an 'aniend ed summo ns and complaint' ... the failure to obtah1 leave of the court constitutes a jurisdi ctiona l defect 10 10 of 13 [*FILED: 11] KINGS COUNTY CLERK 11/22/2021 10:10 AM NYSCEF DOC. NO. 921 INDEX NO. 510149/2015 RECEIVED NYSCEF: 11/22/2021 requiring dismissal of the action against the party sojoined"]). Furthermore, the Second Departmei1t has long held that if an amendment to a pleading "was not warranted under the permission &tanted'' by thecourt'sprior order; the appropriate remedy is to strike out the excessive portions of the amended pleading (see las Bicor Corp. v Mezrahi, 22 AD2d 898, 899 [1964]; see also Sackett v Est. of Konigsberg, 74 AD3d 777,778 [2010] [holding that "the Supreme Court properly granted the defendants' motion to strike the amended complaint based upon her failurelo comply with CPLR 3025"];. Beverly Milk Yonkers Co. v Conrad, 5 AD2d 682, 683 [1957] [upholding order s:ttiking affir1hative defenses where "amended answer was served pursuant to permission granted on a priol' motion, arid there was no provision in that order which would permit interposition of the secondi third and fourth affit1natiVe defr:nses"]). Herc, in October 2019 and April 2021; Diana Azrak 1noved (in 1not seq, 20 and 25) for leave to amend her 2015 complaint to add Marvin Azrak's estate as a party plaintiff. Importantly, A1..rak;s motions for leave to amend also sought permission to add Backenroth and Adler as additional party defendants, to allege additional factual allegations and to assert additional causes ofactfon against the original defendants and Backcnroth and Adler. This court issued the April 28, 2021 amended decision and 9tder granting Diana Azrak's motion "only to the extent that the motion previously held in .abeyance to.add the Estate ofMarvinAzrak as a party plaintiff is granted'' because ,ifue granting of plaintiffs motion to add the estate of M[arvin] Azrak would large:ly moot out l1 11 of 13 [*FILED: 12] KINGS COUNTY CLERK 11/22/2021 10:10 AM NYSCEF DOC. NO. 921 INDEX NO. 510149/2015 RECEIVED NYSCEF: 11/22/2021 ·the need to bifurca te';(em phasis added). Consequently, Diana Azrak's service of the supplem ental summo ns and the atncnde d compla int is a nullity to the extent it added anything other than Joseph Cohen and David Nakash , as Admini strators of the Estate of Marvin Azrak, as party plaintif fs, which was the only amendm ent for which Azrak was granted leave in the April 28, 2021 otdcr. The only authori zed amendments to the original compla int are the sentenc e in paragraph l of the amende d complaint alleging that "Marvi n Azrak passed away prematurely ih 2008, and his interest in Carter Industries is now owned togethe r by Plaintiffs, who are his Widow Diana Azrak and his Estate[ ,]" paragra ph 4 of the amende d complait1t alleging that :'.Joseph Cohen and David Mak.ash are residen ts of New York State and are the duly appoint ed administrators of the Estate of Marvin Azrak (the 'Estate' and with D. Azrak, 'Plainti ffs'), which owns at least Twenty~Five (25%) of the issued and outstan ding shares of Carter Industr ies[,]" paragra ph 20 of the amende d complaint alleging that ''[a]ny owners hip interest in Carter Industr ies which .l'vfarvin Azrak hel_d upon his death passed to the Estate; where it remain s" and paragra ph 21 of the amended compla int allegin g that "(t)oget her, Plaintiffs hold a 50% owners hip interest in Carter Industr ies." With the excepti on of the foregoi ng.alleg ations irt paragra phs 1, 4, 20 and 21 of the amende d compla int regardi ng the Estate of Marvin Azrak; the remaind er of the amende d compla int is stricken as it exceeded the limited leave granted in the April 28; 2021 amende d decision and order. 12 12 of 13 [*FILED: 13] KINGS COUNTY CLERK 11/22/2021 10:10 AM NYSCEF DOC. NO. 921 INDEX NO. 510149/2015 RECEIVED NYSCEF: 11/22/2021 In lightofthe status of the amended complaint,w hichDianaA zrak shallre.,file as directed herein, this court does rtot reach the merits ofthe •original defendants' pre-answer motions to dismiss claims in the amended complaint, all of which have been rendered moot. Accordingly, it is ORDERED that the amended complaint (NYSCEF Doc No. 591) is hereby stricken~ andJ)iana Azrak shall re--file an amended complaint that is consistent with this decision and order and this court's April 28, 2021 amended decision and order within 20 days after service ofthis decision and order with notice ofentry thereof;and it is further ORDERED that Carter Industries' dismissal motion (mot. seq. 27),. Chaim Wolf and Carter Enterprises' dismissal motion (mot. seq. 28) and Saul Wolf's dismissal motion (mot. seq. 29) are all denied as moot; and it is fmihcr ORDERED that Backenroth and Adler's motion (mot. seq. 30) is only granted to the extentthat the amended complaint is hereby stricken; themo1.ion is otherwise denied. This constitutes the decision and order of the court. HON. LAWRENCE KNIPEL ADMINISTRATIVE ,.HJDGE 13 13 of 13

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