Burwick v Dubrovsky

[*1] Burwick v Dubrovsky 2023 NY Slip Op 51140(U) Decided on September 26, 2023 Supreme Court, Sullivan County Gandin, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 September 26, 2023
Supreme Court, Sullivan County

Jonathan Burwick, Plaintiff,

against

Marc Dubrovsky, KENOZA LAKE DEVELOPMENT, LLC, and
KENOZA LAKE ESTATES HOMEOWNERS ASSOCIATION, INC., Defendant.



Index No. E2021-1345

David M. Gandin, J.

The following papers were read and considered on plaintiff's motion for summary judgment:

1. Order to Show Cause;
2. Affirmation in Support with exhibits 1-2;
3. Memorandum of Law in Support;
4. Affirmation in Opposition with exhibits 1-3;
5. Affirmation in Opposition;
6. Memorandum of Law in Opposition;
7. Attorney Affidavit with exhibits 1-4;
8. Affidavit in Opposition with exhibits 1-3;
9. Memorandum of Law in Opposition;
10 Memorandum of Law in Reply; and
11. Affirmation in Reply with exhibits A-C.

Plaintiff is the owner of a residential lot in the Kenoza Lake Development located in the Town of Delaware. He commenced this action for declaratory relief and damages alleging that defendant Marc Dubrovsky, owner and principal of defendant Kenoza Lake Development, LLC ("the developer"), has wrongfully controlled the defendant Kenoza Lake Homeowners Association, Inc. (hereinafter, "the association") board since April of 2016 in violation of the homeowner association's by-laws. Plaintiff alleges the Dubrovsky has used his position on the board to impermissibly reduce the number of board members, unilaterally appoint board members without a vote, engage in financial self-dealings and pass declarations and resolutions which are contrary to the best interests of the association and its members. Plaintiff's first, second and third causes of action seek a declaration that the board was illegally constituted as of April 2016, that all actions taken since then were ultra vires and that Dubrovsky may not serve on or appoint board members. Plaintiff also seeks to extinguish two liens the homeowner's association placed on his property for legal fees incurred based on disputes he had with Dubrovsky. The fourth and seventh causes of action against Dubrovsky assert breach of fiduciary duty and breach of duty of care pursuant to Not-for-Profit Corporation Law (NPLC) § 717. Plaintiff's fifth and sixth causes of action state that the board engaged in transactions which were not fair, reasonable [*2]or the best interests of the association (see NPCL § 715(a)) and that the association failed to implement a conflict of interest policy as required by NPCL § 715-a. Plaintiff moves for partial summary judgment on is first seven causes of action. His eighth cause of action is for defamation.

The proponent of a motion for summary judgment carries the initial burden of tendering sufficient admissible evidence to demonstrate the absence of a material issue of fact as a matter law. Alvarez v. Prospect Hospital, 68 NY2d 320, 324 (1986). If a movant has met this threshold burden, to defeat the motion the opposing party must present the existence of a triable issue of fact. Zuckerman v. New York, 49 NY2d 557, 562 (1980). In deciding a motion for summary judgment, the court must afford the party opposing the motion every inference which may be properly drawn from the facts presented, and consider the facts in a light most favorable to the nonmovant. Szczerbiak v. Pilat, 90 NY2d 553 (1997).

In support of the motion plaintiff submits the pleadings, deposition testimony, the association by-laws, declarations and resolutions, written correspondence and other documentary evidence. The foregoing establishes that between 2004 and 2006 the developer purchased roughly 388 contiguous acres in the Town of Delaware to construct a residential housing development. In a June 2006 affidavit Dubrovsky filed with the Office of the Attorney General in conjunction with his offering plan for the not-for-profit Homeowner's Association Board, he stated that the development was intended to proceed in two phases. Phase I entailed subdividing a portion of the property into 28 residential lots. Annexed to Dubrovsky's affidavit was a subdivision plot map delineating the 28 lots. His affidavit referenced a potential Phase II of the project that would entail subdividing the remaining portion of the 388 acres to create up to 37 additional residential lots. Dubrovsky testified at his deposition that the last residential lot in Phase I of the development was sold on or about April 4, 2016.

The By-Laws of the Kenoza Lake Estates Homeowners Assocation, Inc. govern the composition and authority of the association's board of directors. Under the by-laws, "the owner of each Lot on the Properties shall be a member of the association." Owner is defined as "...the record owner...to any lot, including the developer with respect to any unsold lot." The term lot is defined separately in the by-laws as "any plot of land intended and subdivided for residential uses shown on the plot plan of the properties." Pursuant to Article VIII of the by-laws, the board of directors is comprised of six members who are all initially appointed by the developer. At the first annual association meeting directors were to be elected based on a member vote. Article VIII, Section 2 of the by-laws further states that "[n]otwithstanding the foregoing, the developer shall have the right to designate four (4) or a majority of the directors... until all of the lots in the community have closed title. When the developer no longer holds any membership interests it may not designate any directors."

Plaintiff alleges that since April 2016 Dubrovsky has impermissibly continued to serve on the board of the association and appoint directors notwithstanding lacking a membership interest in the association. The contention is based on a claim that as of that date the developer had sold all lots as defined in the by-laws and thus no longer had the right to designate a majority of board members. Plaintiff further claims that in addition to impermissibly controlling the Board since 2016, Dubrovsky has passed declarations and resolutions including requiring association members to indemnify the association and any board member for the costs of defending any legal [*3]action regardless of its outcome. Plaintiff also alleges that Dubrovsky used his control of the board to hire Green Earth Companies Northeast, LLC and R&H Gorr, companies owned by himself and the other current member of the board Dubrovsky appointed to perform property management services for the Kenoza Lake community. He maintains that this was a clear conflict of interest and that Dubrovsky hired his own companies to enrich himself at the expense of the association.

Dubrovsky and the developer assert that the association's by-laws allow the developer to continue to control the board. They rely on the language of Article VIII, Section 2 which provides that the developer is empowered to designate a majority of directors "...until all of the lots in the community have closed title." They also cite the definition of community within the by-laws as "...[the] development consisting of up to sixty-five (65) Lots." They contend that the foregoing allows the developer to retain control of the board until up to 65 lots are subdivided and sold. Dubrovsky and the developer maintain that such an interpretation would give effect to the purpose of the by-laws which is to facilitate the development and sale of the remaining property the developer has continuously owned since the community's inception. The association asserts that any board decisions, including the legal fee resolution and the hiring of Green Earth Companies and R&K Gorr, are entitled to deference under the business judgment rule and that when viewed objectively they were fair, reasonable and adopted in the best interests of the association.

The association's by-laws and declarations are contracts and their review and interpretation are governed by the principles of contract interpretation. See Matter of Olszewski v. Cannon Point Ass'n, Inc., 148 AD3d 1306 (3rd Dept. 2017). "[A] contract is to be construed in accordance with the parties' intent, which is generally discerned from the four corners of the document itself. Consequently, a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms." Maldonado v. DiBre, 140 AD3d 1501, 1506 (3rd Dept. 2016). "When interpreting a contract, the construction arrived at should give fair meaning to all of the language employed by the parties, to reach a practical interpretation of the parties' expressions so that their reasonable expectations will be realized." Bd. of Managers of Half Moon Bay Mar. Condominium v Bd. of Directors of Half Moon Bay Homeowners Assn., Inc,. 186 AD3d 1679, 1681 (2nd Dept. 2020). Any ambiguity in a contract must be construed against the drafter. White Knight Constr. Contractors, LLC v. Haugh, 216 AD3d 1345 (3rd Dept. 2023).

Plaintiff's submission demonstrates his prima facie entitlement to judgment as a matter of law with respect to his first, second and third causes of action. The by-laws provide that the developer's authority to appoint a majority of the board members under Article VIII, Section 2 of the association by-laws terminated in April 2016 when it sold the last of the 28 lots in Phase I of the development. The term lot in the by-laws is defined as land "intended and subdivided for residential uses shown on the plot plan of the properties" (emphasis added). The use of the term "subdivided" in the past tense undermines any contention that defendants' non-subdivided land that could be developed in the future qualifies as a "lot". The plot plan in the definition of "lot" clearly refers to the map depicting the 28 lots in Phase I of the development submitted with Dubrovsky's 2006 affidavit in furtherance of the offering plan. Thus, pursuant to the plain [*4]language of the by-laws, once the developer sold the last of these 28 subdivided lots, it ceased to have a membership interest precluding it from designating directors. As of that time, all "lots" on the plot plan had been subdivided and sold. The developer thus no longer held a membership interest that permitted the designation of directors because it did not own a "lot" as defined in the by-laws.

Plaintiff's interpretation is further supported by defendants' own conduct. Significantly, neither Dubrovsky nor the developer paid membership dues for the 2016-2017 fiscal year despite all lot owners being required to pay such dues. While defendants contend that Dubrovsky contemplated the possibility of further subdividing the subject property as part of a subsequent Phase II build-out, the fact that the Kenoza Lake development could potentially be subdivided does not undermine the clear and unambiguous language of the by-laws that the term lot as used throughout the by-laws refers to the original 28 residential lots delineated in the plot plan. The Court further rejects defendants' assertion that plaintiff's interpretation of the by-laws are contrary to their intended purpose. Defendants erroneously assert that the by-laws were intended to facilitate the development and sale of the unsubdivided land. To the contrary, the stated purpose of the association's by-laws is "to own and maintain the common areas for the benefit of the members of the association..." Plaintiff's interpretation is consistent with the foregoing in that once a sufficient number of residents acquired an ownership interest in the development, the association would then be in a position to self-govern and bear the financial burden of maintaining the common areas of Kenoza Lake. See Olszewski, at 1309. ("[a] contract must be interpreted so as to give effect to, not nullify, its general or primary purpose"). The defendants' interpretation of the by-laws directly subverts this stated purpose. Accepting the defendants' contentions would enable the developer to retain control of the board in perpetuity by merely retaining an ownership interest in unsubdivided land subject to future subdivision and sale. Based on the foregoing, the Court finds that as of April 2016 Dubrovsky lacked the authority under the by-laws to serve as president of the association and appoint directors to the board. Such conduct was in direct violation of the Kenoza Lake Development by-laws and actions taken by the association after the developer no longer had an ownership interest in the development are ultra vires.

Plaintiff has also made a prima facie showing with respect to his sixth cause of action. The board of a not-for-profit corporation "shall adopt, and oversee the implementation of, and compliance with, a conflict of interest policy to ensure that its directors, officers and key persons act in the corporation's best interest and comply with applicable legal requirements..." NPCL § 715a(a). In opposition, defendants concede that the association has no such policy and thus fail to demonstrate the existence of a triable issue of fact.

Plaintiff has not established his prima facie entitlement to a judgment as a matter of law on his fourth, fifth and seventh causes of action. The elements of a cause of action for breach of fiduciary duty are the existence of a fiduciary relationship, misconduct by the defendant and damages directly caused by the misconduct. See Vil. of Kiryas Joel v. County of Orange, 144 AD3d 895 (2nd Dept. 2016). "The directors of a corporation have the fiduciary obligation to act on behalf of the corporation in good faith and with reasonable care so as to protect and advance its interests." Pebble Cove Homeowners' Ass'n. Inc. v. Shoratlantic Dev. Co., Inc., 191 AD2d 544, 545 (2nd Dept. 1993); see also NPCL § 717(a). Additionally, "no related party may [*5]participate in deliberations or voting relating to a related party transaction in which he or she has an interest..." NPCL § 715(h).

While it is undisputed that Dubrovsky, in his capacity as president of the association, hired companies he and his co-directors owned to perform property management services for the association, this fact alone does not establish that the attacked transactions in themselves constituted a breach of his fiduciary duty to plaintiff. Plaintiff fails to submit evidence that other non-conflicted providers would have charged less to provide the same services. For similar reasons plaintiff has not demonstrated prima facie that Dubrovsky breached his duty to act in good faith by merely employing Green Earth Companies Northeast, LLC and R&H Gorr. Although Dubrovsky participated in the process and voted to hire the aforementioned entities, the lack of affirmative evidence regarding what an independent company would charge could lead a reasonable finder of fact to conclude that the transactions were in fact fair, reasonable and in the association's best interest. See NPCL § 715(I). Wherefore, it is

ORDERED that plaintiff's motion for summary judgment on his first, second, third and sixth causes of action is granted. The motion is otherwise denied. The parties are reminded that a non-jury trial of the parties' remaining claims is scheduled on October 3, 2023 at 9:30am.

The foregoing constitutes the decision and order of the Court. The signing of this decision and order shall not constitute entry or filing under CPLR §2220. Counsel is not relieved from the applicable provisions of that rule regarding notice of entry.

Dated: September 26, 2023
ENTER:
Kingston, New York

_______________________________
HON. DAVID M. GANDIN, JSC