Opinion
No. 34620–12.
2013-01-18
HUNTINGTON VILLAGE DENTAL, PC, Plaintiff, v. John F. RATHBAUER, John Rathbauer, DMD, PC and John F. Rathbauer, DMD, LLC, Defendants.
Garfunkel Wild, PC Great Neck, for Plaintiff. Kirschenbaum & Kirschenbaum, P.C., Garden City, for Defendants.
Garfunkel Wild, PC Great Neck, for Plaintiff. Kirschenbaum & Kirschenbaum, P.C., Garden City, for Defendants.
THOMAS F. WHELAN, J.
Upon the following papers numbered 1 to 15 read on this motion for preliminary injunctive relief and cross motion for an order appointing a receiver and other relief; Notice of Motion/Order to Show Cause and supporting papers 1–3; Notice of Cross Motion and supporting papers 4–8; Answering Affidavits and supporting papers 9–11; 12–13; Replying Affidavits and supporting papers 14–15; Other; (and after hearing counsel in support and opposed to the motion) it is,
ORDERED that this motion (# 001) by the plaintiff for preliminary injunctive relief is considered under CPLR 6311 and is denied; and it is further
ORDERED that the cross motion (# 002) by the defendants for an order appointing a temporary receiver for the plaintiff and an order fixing an undertaking in the event preliminary injunctive relief is granted to the plaintiff is considered under CPLR Articles 64 and 63 and is denied.
This action arises out of the purchase of a dental practice by the plaintiff from defendant John F. Rathbauer, DMD, LLC (hereinafter “LLC”) that was evidenced by an Agreement of Sale, a Promissory Note and a Bill of Sale, each dated June 14, 2010. Also executed on that date was a lease of the entire first floor of a building owned by defendant John F. Rathbauer, DMD, P.C. (hereinafter “PC”) where the dental practice sold was housed. The action was commenced by the plaintiff by the filing of a summons with notice wherein the claims to be asserted were described as follows: 1) recovery of damages by reason of breaches by the defendants of the above described sale documents; 2) recovery of damages for fraudulent inducement; 3) recovery of damages for trespass; and 4) recovery of damages for conversion. The plaintiff claims that the defendants are liable to the plaintiff due to a failure to perform obligations imposed upon them under the terms of the sale documents which were purportedly fraudulently induced by unspecified misrepresentations made during the negotiations. The defendants are further charged with trespassing into the leasehold of the plaintiff and the conversion of certain items of personalty.
By the instant motion, the plaintiff seeks the following preliminary injunctive relief: 1) an order enjoining and restraining the defendant from taking any action to enforce paragraph 7 of the Promissory Note dated June 14, 2010; and 2) enjoining and restraining the defendants from interfering with the operation of the plaintiff's business or entering plaintiff's business premises without authorization. For the reasons stated below, the plaintiff's application for this relief is denied.
As originally constituted, Paragraph 7 of the Promissory Note addressed a default in payment on the part of the plaintiff. Upon such default, the seller was entitled to send a notice of default, with or without a notice of an acceleration of all principal amounts then due which was payable not less than 90 days from the date of the notice. The terms of Paragraph 7 were enlarged by a hand written insertion to provide as follows: “After the 90 days, if the loan is still in default, ownership of the practice and assets * shall revert back to the seller with credit to purchaser for all sums paid to date”.
In its moving papers and replies, the plaintiff claims that the defendant should be enjoined from availing itself of the remedy purportedly afforded the defendants under these “take back” provisions due to the material breach of the obligations imposed upon the defendant seller and/or other defendants under the terms of the Agreement of Sale and Bill of sale. The breaches complained of include, a failure to turn over assets of the Rathbauer practice such as patient lists, dental records, x-rays and inventory as purportedly required by the terms of the Agreement of Sale and Bill of Sale. In addition, the plaintiff claims that the “take back” provisions inserted into paragraph 7 of the Promissory Note did not create an enforceable security interest under Article 9 of the UCC in the assets of the dental practice that was the subject of the sales transaction at issue herein. The plaintiff, who stopped making the installment payments due under the terms of the note in July of, 2102, some two years after the closing of the sale of the business, contends that the defendants' material breaches of the terms of the Agreement of Sale and the unenforceability of the “take back” provisions in paragraph 7 of the note warrant the granting of a preliminary injunction restraining the defendants from taking any action to enforce such “take back” provisions.
In support of its demands for a preliminary injunction restraining the defendants from interfering with plaintiff's business and from entering into its leasehold without permission, the plaintiff alleges that “the defendants have spread deliberate falsehoods among patients, staff and referral sources regarding Village Dental and its principal, Dr. Rongo, in an attempt to interfere with and capture the good of will of the acquired Rathbauer practice” ( see ¶ 5 of the affirmation of plaintiff's counsel in support of its motion). In addition, the plaintiff's claim that individual defendant “Rathbauer has entered Huntington Village's premises and removed documents in attempt to conceal defendants' misrepresentations and other misconduct” ( see id; and ¶ 5 of the Rongo affidavit in support of the plaintiff's motion). The plaintiff further claims that individual defendant Rathbauer entered the plaintiff's leasehold using his landlord's key, as he is a principal of the defendant PC which owns the building in which the plaintiff's leasehold is housed ( see ¶¶ 27–29 of the Rongo affidavit in support of the motion).
The defendants oppose the motion and move for the appointment of a receiver of the plaintiff dental practice and for an order imposing an undertaking in the amount of the balance due under the terms of the note in the event the court grants preliminary injunctive relief to the plaintiff. In opposing the plaintiff's motion, the defendants contend that the additional terms inserted in paragraph 7 of the Promissory Note create a valid and binding “reverter” not a security interest as the plaintiff suggests. Upon the occurrence of the condition subsequent upon which the “reverter” is premised, namely, the plaintiff's failure to pay installments due in July and August of 2012, the issuance of the LLC's August 16, 2012 notice of default, acceleration and demand for payment within 90 days, the practice automatically reverted back to the defendant seller upon the plaintiff's failure to pay the accelerated amount due. The defendant LLC is thus alleged to be the current owner of the dental practice. These circumstances are alleged to preclude the issuance of a preliminary injunction restraining the defendants from enforcing the inserted, handwritten terms providing for the reverter in favor of the defendant LLC as seller. The defendants further claim that the conclusory allegations of wrongdoing on the part of the defendants, including their purported breaches of the Agreement of Sale, fraudulent misrepresentations and other purportedly wrongful conduct, are insufficient to warrant the granting of the preliminary injunctive relief demanded.
It is well established that to prevail on a motion for preliminary injunctive relief, the movant must clearly demonstrate a likelihood of success on the merits, the prospect of irreparable harm or injury if the relief is withheld and that a balance of the equities favors the movant's position ( see Aetna Ins. Co. v. Capasso, 75 N.Y.2d 860, 862, 552 N.Y.S.2d 918 [1990];Wheaton/TMW Fourth Ave., LP v. New York City Dept. of Bldgs., 65 AD3d 1051, 886 N.Y.S.2d 41 [2d Dept 2009]; Pearlgreen Corp. v. Yau Chi Chu, 8 AD3d 460, 778 N.Y.S.2d 516 [2d Dept 2004] ). The decision to grant a preliminary injunction is committed to the sound discretion of the court ( see Tatum v. Newell Funding, LLC, 63 AD3d 911, 880 N.Y.S.2d 542 [2d Dept 2009]; Bergen–Fine v. Oil Heat Inst., Inc., 280 A.D.2d 504, 720 N.Y.S.2d 378 [2d Dept 2001] ), as the remedy is considered to be a drastic one ( see Doe v. Axelrod, 73 N.Y.2d 748, 536 N.Y.S.2d 44 [1988] ). Consequently, a clear legal right to relief, which is plain from undisputed facts, must be established ( see Wheaton/TMW Fourth Ave., LP v. New York City Dept. of Bldgs., 65 AD3d 1051,supra; Gagnon Bus Co., Inc. v. Vallo Transp., Ltd., 13 AD3d 334, 786 N.Y.S.2d 107 [2d Dept 2004]; Blueberries Gourmet v. Avis Realty, 255 A.D.2d 348, 680 N.Y.S.2d 557 [2d Dept 1998] ).
Factors militating against the granting of preliminary injunctive relief include: 1) that the movant can be fully recompensed by a monetary award or other adequate remedy at law ( see Mar v. Liquid Mgt. Partners, LLC, 62 AD3d 762, 880 N.Y.S.2d 647 [2d Dept 2009]; Dana Distr., Inc. v. Crown Imports, LLC, 48 AD3d 613, 853 N.Y.S.2d 111 [2d Dept 2008]; White Bay Enter. v. Newsday, Inc., 258 A.D.2d 520, 685 N.Y.S.2d 257 [1999] ); 2) that the granting of the requested injunctive relief would confer upon the plaintiff the ultimate relief requested in the action ( see Wheaton/TMW Fourth Ave. LP v. New York City Dept. of Bldgs., 65 AD3d 1051,supra; SHS Baisley, LLC v. Res Land, Inc., 18 AD3d 727, 795 N.Y.S.2d 690 [2d Dept.2005] ); or 3) that an alteration rather than a preservation of the status quo of the parties or res at issue would result from a granting of provisional injunctive relief ( see Automated Waste Disposal, Inc. v. Mid–Hudson Waste, Inc., 50 AD3d 1072, 857 N.Y.S.2d 648 [2d Dept 2008]; Matter of 35 New York City Police Officers v. City of New York, 34 AD3d 392, 826 N.Y.S.2d 22 [1st Dept 2006] ).
A preliminary injunction is thus not a proper remedy where it appears that the movant can be fully recompensed by a monetary award or other adequate remedy at law ( see Mar v. Liquid Mgt. Partners, LLC, 62 AD3d 762,supra; Dana Distr. Inc. v. Crown Imports, LLC, 48 AD3d 613,supra ). Nor is a preliminary injunction an available remedy where the irreparable harm claimed is remote or speculative or where it is economic in nature ( see Family–Friendly Media, Inc. v. Recorder Tel. Network, 74AD3d738, 903N.Y.S.2d 80 [2d Dept 2010]; Quick v. Quick, 69 AD3d 827, 892 N.Y.S.2d 769 [2d Dept 2010] ). Where the granting of a preliminary injunction would disturb the status quo and/or confer upon the movant the ultimate relief to which he or she would be entitled if successful on the merits of the underlying pleaded claims for relief, the movant must demonstrate “extraordinary circumstances” in order to obtain such relief ( see Board of Mgrs. of Wharfside Condominium v. Nehrich, 73 AD3d 822, 900 N.Y.S.2d 747 [2d Dept 2010] ). Finally, it is well established that absent the assertion of a claim that provides a jurisdictional predicate for the issuance of injunctive relief under CPLR 6301, the court is without the power to grant preliminary injunctive relief to a moving party ( see BSI, LLC v. Toscano, 70 AD3d 741, 896 N.Y.S.2d 102 [2d Dept 2010]; Seebaugh v. Borruso, 220 AD3d 573, 632 N.Y.S.2d 800 [2d Dept 1995] ).
Here, the court finds that the plaintiff failed to sufficiently demonstrate an entitlement to the preliminary injunctive relief demanded on its motion-in-chief. As indicated above, the plaintiff commenced this action by the filing of a summons with notice rather than the filing of a summons and complaint. Although the notice specified claims sounding in tort and contract, all of the claims listed in such notice are compensable by way of monetary award and there's been no showing that any such award would provide an inadequate remedy. In addition, the absence of a complaint leaves the court without pleaded claims for relief and an inability to conclude the preliminary injunctive relief is warranted because: 1) the preliminary injunctive relief demanded on this motion is not the ultimate relief sought by the plaintiff in this action; and 2) a claim asserted by the plaintiff provides a jurisdictional predicate for the issuance of such preliminary injunctive relief as required by CPLR 6301.
In addition to these procedural concerns, the plaintiff failed to demonstrate an entitlement under the three part substantive test this court is bound to apply in determining the plaintiff's application. While the record contains some evidence of slight, causal and/or technical breaches of the sale documents by the defendants, which may support a finding of a likelihood of success on th merits of the plaintiff's breach of contract claim, the record is devoid of proof that any breach was material and substantial enough to relieve the plaintiff of its payment obligations under the note ( see Mortgage Elec. Registration Sys., Inc. v. Maniscalco, 46 AD3d 1279, 848 N.Y.S.2d 766 [3d Dept 2007] ).
The issue of whether a purported breach by an obligee under a note constitutes a material breach of such note or related agreements that would suspend the payment obligations of the obligor thereunder is generally a question of fact ( see Wiljeff, LLC v. United Realty Mgt. Corp., 82 AD3d 1616, 920 N.Y.S.2d 495 [4th Dept 2011]; RR Chester, LLC v. Arlington Bldg. Corp., 22 AD3d 652, 803 N.Y.S.2d 100 [2d Dept 2005]; Garofalo Elec. Co., Inc. v. New York Univ., 300 A.D.2d 186, 754 N.Y.S.2d 227 [1st Dept 2002]; J.C. Drywall & Acoustical Contr., Inc. v. West Shore Partners, 187 A.D.2d 564, 590 N.Y.S.2d 216 [2d Dept 1992] ). Such is the case here, especially in light of the disclaimer and merger upon closing clauses set forth in the sale documents and the plaintiff's acceptance of the benefits of the sale under the terms of those documents for two years after closing of sale in June of 2010 ( see Syracuse Orthopedics Specialists, PC v. Hootnick, 42 AD3d 890, 839 N.Y.S.2d 897 [4th Dept 2007]; 1602 Avenue Y, Inc. v. Markowitz, 274 A.D.2d 506, 711 N.Y.S.2d 473 [2d Dept 2000]; Rodas v. Manitaras, 159 A.D.2d 341, 552 N.Y.S.2d 618 [1st Dept 1990] ). The record here is simply devoid of any showing that the plaintiff might succeed on a claim that the note is invalid or otherwise unenforceable due to the defendants' substantial breaches of any of the sale documents ( see Mortgage Elec. Registration Sys., Inc. v. Maniscalco, 46 AD3d 1279,supra; RR Chester, LLC v. Arlington Bldg. Corp., 22 AD3d 652,supra; 1602 Avenue Y, Inc. v. Markowitz, 274 A.D.2d 506,supra; Savasta v. 470 Newport Assoc., 180 A.D.2d 624, 579 N.Y.S.2d 167 [2d Dept 1992]; Babylon Assoc. v. Suffolk County, 101 A.D.2d 207, 475 N.Y.S.2d 869 [2d Dept 1984]; O'Herron v. Southern Tier Stores, Inc., 9 A.D.2d 568, 189 N.Y.S.2d 323 [3d Dept 1959] ).
Another ground exists for the denial of those portions of the plaintiff's motion wherein it seeks to restrain the defendants from availing themselves of the “take back” or “reverter” remedy purportedly afforded under the handwritten provisions inserted into paragraph 7 of the Promissory Note, namely, the absence of irreparable harm. The plaintiff's characterization of these “take back” provisions as a “security interest under Article 9 of the UCC” thereby requiring the defendants to initiate judicial proceedings to foreclose such interest or to otherwise gain possession of the practice is equivocal and unsupported by either the facts or the law recited by the plaintiff. The absence of the plaintiff's pledge of property as security for the debt owed by it under the terms of the note, the other transactional documents governing the sale or some other writing appears to be fatal to this claim.
The defendants' characterization of the provisions of paragraph 7 as a “reverter” is equally flawed and unsupported by legal authority. A reverter interest (n/k/a as a possibility of reverter”) is deeply rooted in ancient common law doctrines governing the creation and effect of future interests in real property. The legislature entered the field in the 1850's with the enactment of R.S, pt.2 c. 1, tit.2 (L.1855 c. 17) which was revised upon the enactment of RPL § 30 et. seq. , in 1896. Future interests in both real and personal property are now governed by EPTL Article 6. The possibility of reverter is defined in § 6–4.5 of EPTL as follows: “A possibility of reverter is the future estate left in the creator or in his successors in interest upon the simultaneous creation of an estate that will terminate automatically within a period of time defined by the occurrence of a specified event”.
Like the closely related right of reacquisition, which is a future estate left in the creator or his successors upon the simultaneous creation of the estate on a condition subsequent ( see EPTL § 6–.4. 6), a possibility of reverter is now disfavored by the law because it gave rise to an automatic forfeiture of the interests of the transferee. Common law doctrines were thus supplanted by statutory provisions aimed at ameliorating the harsh effects imposed upon transferees whose interests were burdened with conditions subsequent that created possible reverter and reacquisition rights of a grantor. In addition to stringent recording requirements imposed by RPL § 345, these interests are no longer automatic. Instead, petitions to enforce them must be brought to the court and be granted only if the condition serves a “substantial interest” ( seeRPAPL § 1953; § 1954). Moreover, the enforcement of non-substantial restrictive covenants, possibilities of reverters and rights of reacquisition by an injunction or judgment compelling the return to the grantor of an interest transferred that is subject to a condition subsequent is precluded by RPAPL § 1951.
Given this statutory formulae, the court finds that there is no factual or legal support for the defendants' claims that paragraph 7 of the note created an enforceable “reverter” interest in the defendant seller and that the “practice” and its assets automatically reverted to such defendant upon the plaintiff's failure to pay all amounts due in accordance with such defendant's demand letter of August 16, 2012. A plain reading of the words added to paragraph 7 of the note, including the defendant seller's obligation to return to the plaintiff all monies it paid under the note prior to a default suggests that the remedy of recision rather than the harsh remedy a reverter was intended by the parties to the note. Even if it were otherwise, the defendants would be precluded from enforcing a possibility of reverter without an adjudication of the type contemplated by RPL § 1951 and § 1953.
Since there has been no showing of either a “security interest under UCC Article 9” or an automatic “reverter interest”, and in light of the existence of the lease governing the plaintiff's possession of its leasehold interest in the premises, out of which the subject dental practice operates, an injunction precluding the defendants from “enforcing” the handwritten insertion set forth in paragraph 7 of the note is not necessary to prevent real and immediate harm to the plaintiff.
The court also finds that the conclusory allegations underlying the plaintiff's demands for preliminary injunctive relief restraining the defendants from interfering with the plaintiff's dental practice and/or leasehold are precluded by the fact that these demands appear to be rooted in the plaintiff's tort claims which sound in fraudulent inducement, trespass and conversion. Such claims do not support a demand for preliminary injunctive relief due to the availability of an adequate remedy at law, namely money damages. While the fraudulent inducement claim may support the remedy of recision or recovery of money as damages ( see Stangel v. Chen, 74 AD3d 1050, 903 N.Y.S.2d 110 [2d Dept 2010] ), there's been no showing of a likelihood of success on the merits of such or claim ( see Griffon V, LLC v. 11 East 36th, LLC, 90 AD3d 705, 934 N.Y.S.2d 472 [2d Dept 2011]; Refreshment Mgt. Serv., Corp. v. Complete, 89 AD3d 913, 933 N.Y.S.2d 312 [2d Dept 2011]; Fitzgerald v. Hudson Natl. Golf Club, 11 AD3d 426, 783 N.Y.S.2d 615 [2d Dept 2004] ). The plaintiff also failed to establish a likelihood of success on the merits of its trespass claim, in light of the terms of the lease under which it occupies its dental offices, or on its conversion claim ( see Parekh v. Cain, 96 AD3d 812, 948 N.Y.S.2d 72 [2d Dept 2012]; Ehrlich v. Froehlich, 72 AD3d 1010, 903 N.Y.S.2d 400 [2d Dept 2010] ). For these reasons and those set forth above, the plaintiff's two prong application for preliminary injunctive relief is denied in its entirety.
The defendants' cross motion (# 002) is also denied. The defendants' demands for the appointment of a receiver rest principally on their clam that the practice reverted back to the seller defendant upon the plaintiff's default in payment under the terms of the note. Continuing, the defendants allege that such appointment is necessary to protect defendants' interests in the practice, as the value of the practice has diminished considerably since the plaintiff's purchase. As indicated above, however, the defendants' claim to a reverter has been shown to be without merit. The court thus finds that the reverter theory provides no basis for invocation of the drastic remedy of the appointment of a receiver over the plaintiff's dental practice ( see Breslin Realty Dev. Corp. v. Shaw, 91 AD3d 804, 936 N.Y.S.2d 698 [2d Dept 2012]; Vardaris Tech, Inc. v. Paleros Inc., 49 AD3d 631, 853 N.Y.S.2d 601 [2d Dept 2008] ). The remaining demands for relief asserted by the defendants which were conditioned upon the granting of injunctive relief to the plaintiff have been rendered academic by the court's denial of such relief.