PH-105 Realty Corp v Elayaan

[*1] PH-105 Realty Corp v Elayaan 2023 NY Slip Op 50478(U) Decided on May 16, 2023 Supreme Court, New York County Lebovits, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on May 16, 2023
Supreme Court, New York County

PH-105 Realty Corp, 12 WHITWELL PLACE, LLC, 181 EDGEWATER LLC, and FARHOUD JABER, Plaintiffs,

against

Munzer Elayaan, PH-FULTON CORP., JOHN AND JANE DOES 1-20, and XYZ CORPORATION/LLCS 1-20, Defendants.



Index No. 656160/2016



Aboushi Law Firm PLLC, New York, NY (Aymen A. Aboushi of counsel), for plaintiff Farhoud Jaber.

McKool Smith, P.C., New York, NY (James H. Smith and Grant L. Johnson of counsel), for defendant Munzer Elayyan.[FN1]
Gerald Lebovits, J.

The following e-filed documents, listed by NYSCEF document number (Motion 012) 395, 396, 397, 398, 399, 400, 401, 402, 403, 404, 405, 406, 407, 408, 409, 410, 411, 412, 413, 414, 415, 416, 417, 418, 419, 420, 421, 422, 423, 424, 425, 426, 427, 428, 429, 430, 431, 432, 433, 434, 435, 436, 437, 438, 439, 440, 441, 442, 443, 444, 445, 446 were read on this motion to/for INJUNCTION/RESTRAINING ORDER.

Plaintiff Farhoud Jaber moves for a preliminary injunction (1) enjoining defendant Munzer Elayyan, and non-party 181 Edgewater St. LLC, from interfering in any way with the use, right, possession, or title to real property located at 181 Edgewater Street in Staten Island; (2) enjoining Elayyan from transacting any business on behalf of plaintiff 181 Edgewater LLC (Edgewater), transferring any of its assets, and taking any action to dissipate or encumber it or any of its assets, or the real property located at 181 Edgewater Street; (3) requiring that Elayyan take all steps to transfer that real property back to Edgewater immediately; and (4) enjoining Elayyan from selling, transferring, encumbering, or in any way interfering with the real property at issue.

BACKGROUND

In 2016, Jaber commenced this action alleging that he was the managing member and 75% owner of Edgewater. Jaber asserts that Elayyan unlawfully and fraudulently removed Jaber as managing member of Edgewater and converted his 75% ownership. Jaber argues that by removing him as managing member and depriving him of his ownership interest, Elayyan also deprived him of the right to manage Edgewater and its sole asset—waterfront property located at 181 Edgewater Street in Staten Island. (NYSCEF No. 408 at ¶¶ 31-36 [amended verified complaint].)

In 2018, Jaber moved for summary judgment on his claims. (NYSCEF No. 289 [notice of motion].) In April 2019, this court denied Jaber's motion and granted Elayyan's cross-motion for summary judgment. (PH-105 Realty Corp v Elayaan, 2019 NY Slip Op 31060[U] [Sup Ct, NY Apr. 19, 2019].) Plaintiffs appealed. In May 2020, the Appellate Division, First Department, reversed this court's decision. (PH-105 Realty Corp v Elayaan, 183 AD3d 492 [1st Dept 2020].) The First Department determined that this court had erred in "failing to apply the doctrine of 'tax estoppel[,]'" according to which "defendants' acts in filing corporate tax returns for the years 2010 through 2014, signed by defendant [Elayyan], which contained factual statements that plaintiff Jaber had a 75% ownership interest in Edgewater during that time period, . . . precludes defendants from taking a position contrary to that in this litigation." (Id. at 492.) The First Department remanded the case to this court after concluding that "[i]ssues of fact remain as to who presently owns Edgewater and whether defendant [Elayyan] unlawfully stripped Jaber of his ownership rights." (Id. at 493.)

In December 2021, after the First Department's decision, 181 Edgewater St. LLC purchased a 75% interest in Edgewater allegedly for $2.25 million. Following the purchase, Edgewater vested the waterfront property in 181 Edgewater St. LLC's membership interests by deed on March 1, 2022. (NYSCEF No. 418 at 7.) Then, on August 23, 2022, Jaber brought by order to show cause this motion for a preliminary injunction. Jaber's proposed order to show cause included an application for interim relief restraining Elayyan from selling the property and transacting any other business on behalf of Edgewater. Both Elayyan and 181 Edgewater St. LLC opposed Jaber's requested TRO. (See NYSCEF Nos. 415, 416 [letters in opposition].)

On August 26, 2022, this court signed Jaber's OSC, and granted in part and denied in part Jaber's requested interim relief. (See NYSCEF No. 417 [signed order to show cause].) This court's order on the requested interim relief restrained the "further alienation or encumbrance" of the waterfront property. (Id. at 3 [order on interim relief].) But in doing so, this court emphasized plaintiffs' more than two years of inaction following the First Department decision and [*2]concluded that "plaintiffs have not shown that the full interim relief they seek would be warranted—both due to the lack of any evident exigency, and because the relief sought is premised on an ownership claim that plaintiffs have by no means yet established." (Id.)

DISCUSSION

Jaber asserts that a preliminary injunction is required to "1. Return Edgewater's sole asset to it, and 2. enjoin any further sale, transfer or dissipation of Edgewater's assets pending the outcome of this matter." (NYSCEF No. 396 at 6.) A court may grant a preliminary injunction when the movant proves "(1) a likelihood of ultimate success on the merits; (2) the prospect of irreparable injury if the provisional relief is withheld; and (3) a balance of equities tipping in the moving party's favor." (Doe v Axelrod, 73 NY2d 748, 750 [1988].) This court concludes that Jaber has not made that showing here.

1. Jaber Cannot Prove a Likelihood of Success on the Merits

Jaber seeks a declaratory judgment that he has a 75% membership interest in Edgewater and a claim for unjust enrichment against Elayyan for unlawfully depriving Jaber of his interest. (NYSCEF No. 396 at 8.)

Because the First Department declared that Elayyan is estopped from denying Jaber's claim to ownership for the period of 2010 to 2014, Jaber argues, "it is now incumbent on Defendant-Elayyan to explain how he can now claim ownership of Jaber's membership interest without compensating Jaber for same." (NYSCEF No. 445 at 13.) Jaber misreads the First Department's decision.

The First Department concluded under the tax-estoppel doctrine that Elayyan is "estopped to deny Jaber's 75% ownership interest in Edgewater between 2010 and 2014." (PH-105 Realty Corp, 183 AD3d at 493.) Importantly, however, the First Department did not conclude that Jaber "remains the 75% owner of Edgewater." (Id. [emphasis added].) That Court expressly left that question to this court.

Thus, on his motion for a preliminary injunction, Jaber retains the burden of showing that he can succeed on his claim that Elayyan unlawfully stripped him of his ownership interest in Edgewater. Logically, therefore, Jaber must show (1) his lawful claim to ownership and (2) how Elayyan frustrated that claim. But Jaber relies on the same evidence as in his October 2018 summary-judgment motion—the conclusory allegations in the affidavit of Vadem Brodsky (25% owner of Edgewater), excerpts from Jaber's and Elayyan's 2018 deposition transcripts, and Edgewater's 2010-2014 tax returns.

As for the tax returns, they offer no support for Jaber's assertion that his membership interest continued after 2014. Further, as this court determined in its 2019 decision, Brodsky's affidavit on its own is insufficient to prove Jaber's claims. (See PH-105 Realty Corp, 2019 NY Slip Op 31060[U], at *2 [finding the submission of Brodsky's affidavit "unavailing" because it gave "no details regarding [its] statements—not even the extent of Jaber's putative ownership interest—and lack[ed] any supporting documentation"].) Jaber also asserts that Elayyan admitted in his deposition that Jaber had a membership interest in Edgewater and submits a redacted version of Elayyan's deposition transcript as proof. Elayyan, however, notes that the portions of Elayyan's testimony that Jaber redacts include Elayyan's statements that Jaber "never was the [*3]owner." (NYSCEF No. 423 at 210.)

Edgewater's operating agreement provides for how an individual may establish his membership interest in the company. The operating agreement states that Edgewater's members' "names and addresses shall be set forth in the Books and Records of this Company." (NYSCEF No. 430 at 2 ¶ 1.) The agreement further provides that "[e]ach member of this Company shall contribute the amount set forth under his name as set forth in the Books and Records of this Company as the sole Capital Contribution to be made by him." (Id. at 8 ¶ 1.) Jaber has not submitted evidence of his name and membership interest being recorded in Edgewater's books and records,[FN2] nor of his "sole Capital Contribution" to the company. Indeed, Jaber conceded in his deposition that he did not form Edgewater, did not make any capital contributions to it, and played no role in managing its asset—i.e., the waterfront property at issue. (NYSCEF No. 418 at 4 nn 7-11.)

Further, Jaber claims that Elayyan unilaterally removed him from ownership by filing amended 2014 tax returns in 2015 that listed Elayyan and his brother as Edgewater's owners. But Jaber does not explain how his removal from the tax documents was connected to the loss of his membership interest in the company. And assuming the truth of Jaber's allegations, Jaber was 75% owner and managing member of Edgewater when Elayyan filed the amended 2014 tax returns. Jaber does not explain why Elayyan—whom Jaber alleges holds no membership interest in Edgewater—continued to file tax returns on Edgewater's behalf. Jaber also does not explain why, as managing member, he was unaware of Elayyan's deception until 2016, when he commenced this action.

Jaber has not established a likelihood of success on his claim that he is the 75% owner of Edgewater. And Jaber has not established his unjust-enrichment claim, which requires that he show that "the other party was enriched, at plaintiff's expense, and that it is against equity and good conscience to permit [the other party] to retain what is sought to be recovered." (Georgia Malone & Co., Inc. v Rieder, 86 AD3d 406, 408 [1st Dept 2011] [internal quotation marks omitted].)

In the complaint, Jaber asserts that defendants "were unjustly enriched in that they obtained property and other benefits without just compensation, right, or legal methods." (NYSCEF No. 408 at ¶ 48 [amended verified complaint].) But Jaber has submitted no evidence that Elayyan was enriched at Jaber's expense when he transferred interest in Edgewater and its sole asset to another entity. Indeed, during Jaber's deposition, he conceded that he did not contribute any funds towards the waterfront property. (NYSCEF No. 422 at 103:6-25 [stating that it was his brother who, "via monies and services, paid for [Jaber's] ownership in that [*4]property"].)

Elayyan, on the other hand, has provided ample documentary evidence of the money he invested into forming Edgewater and developing the waterfront property.[FN3] (See NYSCEF Nos. 426, 433, 434, 435, 436, 444 [invoices for the purchase of the waterfront property, procurement of commercial liability insurance, payment of the filing fee to form Edgewater, filing of corporate tax returns, and for fines issues by various state agencies].) This court is left with no more than Jaber's conclusory assertions that Elayyan was enriched at his expense, which is not enough to prove a likelihood of success on the merits. (See Mandarin Trading Ltd., 16 NY3d at 183 ["Without sufficient facts, conclusory allegations that fail to establish that a defendant was unjustly enriched at the expense of a plaintiff warrant dismissal."].)

2. Jaber Cannot Prove He Will Suffer Irreparable Injury

Jaber argues that he will suffer irreparable injury when Elayyan "transfer[s] Edgewater's sole asset to his shell company for no consideration what so ever." Jaber asserts that this will leave "Edgewater insolvent, without any assets, and a defunct LLC." (NYSCEF No. 396 at 11.) But, as explained above, Jaber has not shown that he has any membership interest in Edgewater. Moreover, Jaber has not shown that Edgewater's alleged insolvency might cause him harm, given that he has no financial stake in the entity or its asset to begin with.

Jaber also argues that Elayyan had no right to sell Edgewater's majority interest in the property, because Elayyan "has no lawful membership interest" in Edgewater. (NYSCEF No. 396 at 11.) But the operating agreement provides that all or substantially all the company's assets may be sold or transferred on "[t]he vote of at least two-thirds in interest of the members entitled to vote." (NYSCEF No. 430 at 3 ¶ 6.) Elayyan is recorded as 75% owner in the membership share certificates (NYSCEF No. 428 at 3) and the member roster (NYSCEF No. 429 at 3), and he is listed as "sole member" in the operating agreement (NYSCEF No. 430 at 13). Elayyan's 75% ownership interest in Edgewater therefore entitled him to transfer its assets to 181 Edgewater St. LLC.

Jaber relies on provisions of New York's Limited Liability Company Law to support his claim that no transfer was "permitted without the vote and approval by the majority of Edgewater's Members." (NYSCEF No. 396 at 11.) But the default provisions of the Limited Liability Company Law do not apply where an LLC's operating agreement speaks directly to the question at issue. (Cf. Manitaras v Beusman, 56 AD3d 735, 736 [2d Dept 2008] [determining that LLC Law applies because "the operating agreement of Kisco Radio is silent on the issue of the sale of the company's sole asset"].) Because Edgewater's operating agreement expressly provides for how the sale of its sole asset may be commenced, the Limited Liability Company Law does not apply, and this court must look to the operating agreement.[FN4]

Elayyan asserts that Jaber's preliminary-injunction request is academic because the waterfront property has already been sold. (See NYSCEF No. 425 at ¶¶ 28 [Elayyan affidavit] [stating that Edgewater vested the waterfront property in 181 Edgewater St. LLC's membership interests on March 1, 2022—three months before Jaber filed this motion].) Elayyan argues that Jaber seeks a preliminary injunction, not to maintain the status quo, but "to upend it" (NYSCEF No. 418 at 1)—to revoke 181 Edgewater St. LLC's majority interest in the property and return it to Edgewater. Indeed, in Jaber's letter-briefing to the court, he wrote that "while Defendant Elayyan claims the transaction has been completed, there is still an opportunity to [restrain] the remaining 25% as well as to make 181 Edgewater St. LLC return the 75% it took from Edgewater." (NYSCEF No. 424 at 1.) But Jaber provides no support for this extraordinary remedy. And because the remaining 25% interest in the property is owned by Brodsky, "Elayyan cannot be enjoined from selling something he does not own."[FN5] (NYSCEF No. 418 at 13.)

Elayyan also argues that Jaber cannot prove irreparable injury because his claims can be compensated monetarily. (NYSCEF No. 418 at 14 n 34, citing PH-105 Realty Corp., 2019 NY Slip Op 31060[U], at *1 [describing Jaber as seeking, "in the alternative, compensation for the alleged deprivation of his ownership rights"].) But Jaber seeks a preliminary injunction not only to enjoin Elayyan from transferring Edgewater's asset, but also to enjoin him from fraudulently acting on behalf of Edgewater without Jaber's knowledge or consent. Monetary damages may remedy the former claim. It may not remedy the latter, particularly where, as here, Edgewater's operating agreement vested its members with managerial rights.[FN6] (NYSCEF No. 430 at 2 ¶ 1; see [*5]Yemini v Goldberg, 60 AD3d 935, 937 [2d Dept 2009] ["[B]ecause control and management of ANO and its holdings were at stake, money damages were not sufficient."].)

3. Balance of the Equities Favors Denying the Motion

Jaber has not shown that he will suffer any harm should this court decline to grant the injunctive relief. On the other hand, granting this relief would deprive non-party 181 Edgewater St. LLC of its property and potentially result in injury to the property itself. (See NYSCEF No. 418 at 16 [arguing that the requested relief would prevent any person from maintaining the property other than Jaber, who has not indicated that he is able or willing to do so].) This court concludes that the balance of the equities does not tip in Jaber's favor.[FN7]

Accordingly, it is

ORDERED that plaintiff Jaber's motion for a preliminary injunction is denied.

DATE 5/16/2023 Footnotes

Footnote 1: The caption in this action lists defendant's surname as "Elaayan." Defendant's papers spell it "Elayyan." This decision uses defendant's spelling.

Footnote 2:Jaber claims that he "made several document requests for any books and records pertaining to Edgewater" but that Elayyan did not produce any documents. (NYSCEF No. 396 at 4 n 4.) According to Jaber, "Elayyan testified that he does not have any books and records for Edgewater." (Id.) But aside from these conclusions, Jaber does not submit any evidence of his document requests or of Elayyan's testimony denying their existence. Regardless, Elayyan has filed copies of Edgewater's articles of incorporation (NYSCEF No. 427), member certificates (NYSCEF No. 428), member-manager roster (NYSCEF No. 429), and operating agreement (NYSCEF No. 430) as part of his opposition papers—none of which mention Jaber or disclose his asserted membership interest.

Footnote 3:Jaber's unsupported claims contradicting Elayyan's documentary evidence are unavailing. (See NYSCEF No. 445 at 11 [Jaber reply brief] [asserting that Elayyan "does not submit anything to the Court to establish that he made any tax payment, paid for maintaining the property or had done any upkeep"].)

Footnote 4:Even if the Limited Liability Company Law applied, Jaber's argument would still fail. Contrary to Jaber's claim, the Limited Liability Company Law does not require that the majority of members vote and approve a transfer or sale, but rather a "majority in interest of the members." (Limited Liability Company Law § 402 [d] [2] [emphasis added].) Elayyan's 75% membership interest, then, would still suffice to grant him the right to transfer or sell the Edgewater's assets.

Footnote 5:Jaber also claims that the transaction was a sham because 181 Edgewater St. LLC is Elayyan's shell company, the transfer was made for no consideration, and the same law firm that handles Elayyan's real-estate transactions signed on behalf of both companies. (NYSCEF No. 396 at 5-6.) Jaber argues that because "the status quo is a result of the Defendant's deception, . . . he cannot use his deceptive actions to shield himself and the defaulting party from a TRO." (NYSCEF No. 445 at 16, citing New York Real Estate Inst., Inc. v Edelman, 42 AD3d 321, 322 [1st Dept 2007].) But in the case Jaber cites in support, the plaintiff's harm was caused by the defendant's violation of the parties' non-compete agreement. The plaintiff's harm was evident. Here, however, Jaber only submits conclusory allegations in support for his claim that the transfer was a sham. And even assuming that the transaction was a sham, Jaber does not explain how it caused him any harm.

Footnote 6:Elayyan also claims that the preliminary injunction should be denied because Jaber did not move for relief until six years after commencing this action. Elayyan argues that if Jaber was concerned about Elayyan's management of the Edgewater property, he could have brought this claim for relief at any time. That he did not do so until now weighs against Jaber's claim. In response, Jaber claims that no delay occurred. He argues that he filed a lis pendens to protect his rights to the property for years (2016-2018) before this court vacated it. He further asserts that he could not seek an order to show cause after this court granted Elayyan's summary-judgment motion in 2019 and while Jaber was appealing the decision to the First Department. And Jaber points to the fact that once he discovered Elayyan's transfer of the waterfront property, Jaber immediately sought relief. This court need not resolve this debate, however, because the court determines that the preliminary-injunction request should be denied for other reasons.

Footnote 7:Elayyan further claims that equity favors denying the OSC because of Jaber's "submission of highly suspicious, and possibly forged, evidence in support of [his] request." (NYSCEF No. 418 at 16.) Because this court denies Jaber's motion on other grounds, this court does not reach the Elayyan's challenge to the authenticity of Jaber's evidence