Opinion
Index Number: 5917-2008
06-22-2012
LARRY KIMELSTEIN, Plaintiff, v. JEFFREY KIMELSTEIN and L & J REALTY, LTD and THE VAN DEPOT, INC., Defendants.
Attorney for Plaintiff Larry Kimelstein, PRO SE Attorney for Defendants Thaler & Gertler, LLP Dominick P. Leonardi, Esq.
SHORT FORM ORDER
Present: HON. EMILY PINES
J. S. C.
Motion Sequence No's.: 009 MGCASEDISP
[ X ] FINAL
[ ] NON - FINA
Attorney for Plaintiff
Larry Kimelstein, PRO SE
Attorney for Defendants
Thaler & Gertler, LLP
Dominick P. Leonardi, Esq.
Defendants, Jeffrey Kimelstein ("Jeffrey"), L&J Realty, Ltd. ("L&J"), and the Van Depot, Inc. ("Van Depot") (collectively "Defendants") move (Mot. Seq. # 009) for summary judgment dismissing the remaining claims in Plaintiff's Second Amended Verified Complaint. Plaintiff, Larry Kimelstein ("Plaintiff"), pro se, opposes the motion.
The Plaintiff and Jeffrey Kimelstein are brothers. In the Second Amended Verified Complaint, the Plaintiff alleges, among other things, that in late 1999 he and Jeffrey agreed to purchase property located at 45 West Sunrise Highway, Lindenhurst, New York ("Property"), and use $110,000 given to them by their parents as a down payment. Plaintiff claims that he and Jeffrey formed L&J ("L" for Larry and "J" for Jeffrey), a New York corporation, to hold the Property. Plaintiff further alleges that he and Jeffrey are each 50% shareholders in L&J. L&J leased the Property to Van Depot, a New York corporation in the business of buying and selling used trucks, vans and/or commercial vehicles. Plaintiff alleges that he and Jeffrey are each 50% shareholders in Van Depot and that they jointly operated Van Depot from late 1999 until September 2007.
According to Plaintiff, in September 2007, Jeffrey agreed to purchase Plaintiff's interest in L&J for $350,000.00. in exchange for which Plaintiff agreed to forgo his interest in Van Depot. Plaintiff claims that Jeffrey agreed to pay him $850.00 per week with the balance due in 90 days or when Jeffrey refinanced the Property, whichever occurred later. Plaintiff alleges that his last day as an "active shareholder" was September 28, 2007. Plaintiff further alleges that the Defendants only made 13 payments to him totaling $ 11,050.00 in accordance with their agreement. Thus, Plaintiff claims that he remains a 50% shareholder of both L&J and Van Depot.
By order dated February 5, 2010, this Court (1) granted Defendants' motion to dismiss the Plaintiff's causes of action for breach of contract and specific performance, (2) denied Defendants' motion to dismiss the causes of action to impose a constructive trust, (3) granted Plaintiff's cross-motion to amend his complaint to add causes of action for unjust enrichment, breach of fiduciary duty, corporate dissolution, and an accounting, and (4) denied Plaintiff's cross-motion to amend the complaint to add a cause of action for fraud.
By order dated October 26, 2011, this Court (1) denied the Defendants' motion to dismiss the causes of action to impose a constructive trust, for unjust enrichment and for dissolution pursuant to BCL § 1104-a, and (2) granted Defendants' motion to dismiss the causes of action for breach of fiduciary duty and for an accounting.
Defendants now move for summary judgment dismissing the remaining claims asserted by the Plaintiff (i.e. imposition of a constructive trust, unjust enrichment, and dissolution pursuant to BCL § 1104-a). In support of the motion, Defendants submit, among other things, transcripts of the deposition testimony of both Plaintiff and Jeffrey.
At his deposition, Jeffrey testified that in 1999 he wanted to buy the Property and start a business and he discussed same with the Plaintiff. Jeffrey obtained a loan of approximately $100,000 from his parents to be used to buy the Property and start up the business. Jeffrey provides a copy of the contract of sale for the Property between himself as Buyer and Sunrise Realty Corp. as Seller, as well as a copy of a check for $40,000 drawn on his personal account for a down payment. Both Jeffrey and Plaintiff attended the closing for the Property. Jeffrey testified that Plaintiff was present at the closing because he was going to give Plaintiff a job with Van Depot. Jeffrey testified that his parents loaned the money solely to him so that he could buy the Property and give Plaintiff a job because of Plaintiff's instability with two ex wives and a business that had just failed. Jeffrey admitted that the Plaintiff hired and fired his friends while he was with Van Depot, and that part of Plaintiff's responsibilities included advertising, payroll and making payments on the financing of vehicles in Van Depot's inventory which were obtained utilizing Jeffrey's credit. Plaintiff was authorized to write checks on a Van Depot corporate account.
In 2007, Plaintiff expressed his desire to Jeffrey to sell the Property before the real estate market declined. Jeffrey denied that he and Plaintiff discussed Jeffrey buying Plaintiff's share in the business. According to Jeffrey, he asked Plaintiff to leave the business because Plaintiff refused to do any more work. Jeffrey never offered Plaintiff $3 50,000 to purchase his share of the business. He offered Plaintiff $850 just to leave so that he could get the business back on track. Jeffrey explained that he issued a check for $850 on a Van Depot account payable to Plaintiff because he felt bad that he had asked Plaintiff to leave and decided to give Plaintiff $850 per week, as severance pay, to allow Plaintiff to get back on his feet. Jeffrey acknowledged that one check had a notation stating "Payment Towards Buy Out of V.D." and that "V.D." stood for Van Depot. Jeffrey made 11 payments of $850 each to Plaintiff and stopped making the payments when the action was commenced. Jeffrey denied telling the Van Depot employees that Plaintiff sold him his share of the business. After Plaintiff left the business, Jeffrey tried to consolidate loans to bring down payments on outstanding credit lines to get the business back on track. He could not get refinancing.
Plaintiff testified, among other things, that while in the Air Force he was injured in an automobile accident in 1966, since which time he has received disability payments from the Veterans Administration. In 1999, Plaintiff filed for personal bankruptcy. His bankruptcy case was closed in 2000 and his debts were discharged. Plaintiff admitted that in the bankruptcy proceeding he failed to disclose that he had $87,000 in cash in a safe deposit box because he needed the cash to open his next business.
Also in 1999, Plaintiff looked for a piece of property to purchase and use to operate a business selling used cars. He approached Jeffrey and they discussed going into business together. He asked Jeffrey if he wanted to be partners in a used truck retail operation. Plaintiff asked his parents whether they would loan him $100,000 to buy the Property and they agreed, but only if Plaintiff made Jeffrey a partner. Plaintiff claims that he found the Property through a friend, and that he and Jeffrey formed L&J (for "Larry" and "Jeff") to own the Property. Plaintiff told Jeffrey that they "would be 50/50 partners on everything." Plaintiff told Jeffrey that their parents would loan them $ 100,000 and that Plaintiff had $87,000 that they could use to make improvement to the Property and purchase the first few vehicles to sell. Plaintiff testified that their parents made the $100,000 loan in late 1999, and L&J thereafter took title to the Property. Plaintiff claims that their parents loaned them an additional $30,000 over a period of time to start up Van Depot. There were no written loan agreements.
Jeffrey hired a lawyer and an accountant to form the corporate entities. Jeffrey signed the papers to form the corporations. Plaintiff's name was not on any of the corporate papers. Jeffrey signed the closing papers for the acquisition of the Property. Plaintiff admitted that he was not an officer, director, or shareholder of either L&J or Van Depot because he had declared personal bankruptcy and did not want his negative credit to harm the credit of Van Depot. Plaintiff knew Van Depot needed to obtain financing to obtain inventory and knew they would not get it if his name was on the papers. Therefore, his name was kept off all corporate documents. Plaintiff was never issued stock for either L&J or Van Depot. Additionally, Plaintiff never asked to become a shareholder of L&J or Van Depot because he had two ex-wives and was receiving Veteran's disability. Plaintiff testified that he made all the decisions although his name was not on the papers, and that his title at both corporations was "owner." Plaintiff claims that at the very beginning Jeffrey authorized him to sign Jeffrey's name on any documents.
Plaintiff did not review or sign the tax returns for L&J or Van Depot. Plaintiff admitted that he was not personally legally obligated to pay any of the debts of L&J or Van Depot. Plaintiff claims that he deposited $25,000 of his own $87,000 into the bank account of L&J and expected to be paid back. The remainder of the $87,000 was used to obtain vehicles to sell and Plaintiff expected that money to be paid back. Approximately $20,000 was paid back to Plaintiff. Plaintiff claims that he contributed an additional $50,000 to the entities over the years. For the first couple of months, he and Jeffrey did not draw a salary but by 2002 they each drew weekly salaries of $2,000 in cash. Plaintiff did not report his salary. He did not file any personal income tax returns from 1999 until 2007 because he had two ex-wives to whom he paid child support and he did not want them to see that he was doing well and because he was not sure if he was allowed to work in that capacity and collect his Veteran's disability. Plaintiff testified that he "[t]ried to fly under the radar."
Plaintiff testified that because Van Depot's business had dropped off in 2007, he and Jeffrey each contributed approximately $15,000 into Van Depot's account. These contributions were not reflected on Van Depot's books. In the summer of 2007, Plaintiff told Jeffrey that he thought they should sell the Property owned by L&J and liquidate the inventory of Van Depot. Jeffrey did not want to shut the down the business. Plaintiff testified that he and Jeffrey reached an agreement pursuant to which Jeffrey would buy out Plaintiff for $350,000. According to Plaintiff, Jeffrey said he would pay Plaintiff $850 per week until he could refinance the Property and pay off Plaintiff in full, which they believed would be a few months. Plaintiff's last day at Van Depot was on September 28, 2007. Thereafter, he was paid $850 per week by check for 11 or 12 weeks as part of the buy out. This agreement was not memorialized in writing. Jeffrey applied for refinancing but was denied and told Plaintiff that he would have to sue him to get his money.
Defendants contend, among other things, that summary judgment should be granted because the documentary evidence and the Plaintiff's admissions at his deposition establish, as a matter of law, (1) that the Plaintiff never had an ownership interest in either L&J or Van Depot, (2) that the Plaintiff never had an ownership interest in the Property. (3) that Plaintiff's claim tor the imposition of a constructive trust is barred by the doctrine of unclean hands, (4) that Plaintiff's unjust enrichment claim is barred by his claim of the existence of an express oral contract between the parties, (5) that Defendants were not unjustly enriched as Plaintiff was never an owner of either L&J or Van Depot, and (6) that Plaintiff does not have standing to seek dissolution of L&J or Van Depot pursuant to BCL § 1104-a because he was never a shareholder of either corporation.
In opposition to Defendants' motion for summary judgment the Plaintiff submits, among other things, his own affidavit in which he essentially repeats his deposition testimony. Plaintiff emphasizes that in 1999 he and Jeffrey agreed to be equal partners in acquiring the Property and operating the new business. Plaintiff also provides an affidavit from Carmine Solomita, a mutual acquaintance of the parties, stating, among other things, that Jeffrey told him that he and Plaintiff were 50/50 partners in Van Depot.
The Plaintiff argues, among other things, that the Defendants' motion should be denied because the conflicting deposition testimony of the parties, as well as the affidavit from Solomita, demonstrate the existence of issues of fact as to whether Plaintiff has the rights of a shareholder in L&J and Van Depot. Specifically, Plaintiff contends that he contributed 'sweat equity" as consideration for shares in the corporations. With regard to the cause of action for the imposition of a constructive trust, Plaintiff argues (1) that there was a fiduciary relationship between the parties as he had an ownership interest in the corporations, (2) that Jeffrey promised to buy him out, (3) that he relied on such promise in transferring his right to be paid a salary and other benefits as an owner of the corporations, and (4) that Defendants have been unjustly enriched because they failed to honor the buyout agreement or continue paying Plaintiff a salary. Additionally, Plaintiff contends that the doctrine of unclean hands does not bar him from recovering because the Defendants have not established, as a matter of law, (1) that they were injured by Plaintiff's conduct, (2) that Plaintiff's conduct was unconscionable, and (3) that Plaintiff's conduct was directly related to the subject matter of this action. Plaintiff also argues that because this Court previously dismissed his breach of contract claim, the Defendants' contention that his claim for unjust enrichment is barred by the existence of a valid and enforceable contract between the parties is without merit. Finally, Plaintiff contends that because there are issues of fact as to whether he has an ownership interest in the corporations, Defendants are not entitlement to summary judgment dismissing his claim for dissolution under BCL § 1104-a.
Discussion
A party moving for summary judgment has the burden of making a prima facie showing of entitlement to judgment as a matter of law, offering sufficient evidence demonstrating the absence of any material issues of fact (Winegrad v. New York Univ. Med. Ctr. 64 NY2d 85, 487 NYS2d 316 [1985]; Zuckerman v. City of New York, 49 NY2d 557, 427 NYS2c 595 [1980]). Once a prima facie showing has been made by the movant, the burden shifts to the party opposing the motion to produce evidentiary proof in admissible form sufficient to establish material issues of fact which require a trial (see, Zayas v. Half Hollow Hills Cent. School Dist.,226 AD2d 713, 541 NYS2d 701 [2nd Dept. 1996]). "[I]n determining a motion for summary judgment, evidence must be viewed in the light most favorable to the nonmovant" (Pearson v Dix McBride, LLC, 63 AD3d 895 [2d Dept 2009]). Since summary judgment is the procedural equivalent of a trial, the motion should be denied if there is any doubt as to the existence of a triable issue or when a material issue of fact is arguable (Salino v IPT Trucking, Inc., 203 AD2d 352 [2d Dept 1994]).
The doctrine of unclean hands bars the grant of equitable relief to a party who is guilty of immoral, unconscionable conduct when the conduct relied on is directly related to the subject matter in litigation and the party seeking to invoke the doctrine was injured by such conduct (National Distillers and Chemical Corp. v. Seyopp Corp., 17 NY2d 12, 15-16 [1966]; Wells Fargo Bank v. Hodge, 92 AD3d 775, 776 [2d Dept. 2012]).
In Levy v. Braverman (24 AD2d 430 [1st Dept. 1965]), the plaintiff, following a non-jury trial, obtained a judgment declaring that he was the true and beneficial owner of all the stock in a corporation which had been issued and was outstanding in the name of the defendant. On appeal by the defendant, the Appellate Division, First Department held that the Trial Justice properly found that the purpose of issuing the stock in the name of the defendant was to prevent plaintiff's creditors, including plaintiff's former wife who had a judgment against plaintiff, from collecting on their claims. However, in reversing the judgment, the Appellate Division determined that the Trial Justice erred in holding that plaintiff's purpose in hindering and defrauding his creditors was a matter solely between plaintiff and his creditors and did not in any way affect the rights between plaintiff and defendant. The Court noted that relief had been denied, as a matter of law, on the basis of the unclean hands doctrine in similar situations and stated, in relevant part:
"The doctrine of clean hands' is a fundamental principle of equity as well as public policy. Where a litigant has himself been guilty of inequitable conduct with reference to the subject matter of the transaction in suit, a court of equity will refuse him affirmative aid."
Thus, the Appellate Division determined, as a matter of law, that plaintiff should have been denied relief and his complaint should have been dismissed (see Levy v. Braverman, supra).
Similarly, in this case, the Plaintiff admitted at his deposition that the reason his name was not on any of corporate paperwork for L&J or Van Depot and that he was never issued any shares in either corporation was because he had just filed for bankruptcy and knew that his negative credit rating would prevent Van Depot from obtaining financing to obtain inventory. Additionally, he admitted that he never asked to become a shareholder of either corporation or pay taxes from 1999 until 2007 because he had two ex-wives to whom he paid child support and he did not want them to see that he was doing well. He did not want to adversely affect his continued receipt of his Veteran's disability. Also, Plaintiff admitted that in his bankruptcy proceeding he intentionally failed to disclose that he had $87,000 in cash in a safe deposit box because he need the money to open his next business. Plaintiff claims that he subsequently used some of this money to operate Van Depot. Plaintiff's admitted goal was "to fly under the radar." Based upon the foregoing, it is clear that Plaintiff's purpose in engaging in this scheme was to prevent his creditors, both present and future, as well as; his ex-wives and the federal government, from collecting on their accrued or potential claims against the Plaintiff. Contrary to the Plaintiff's contention, the Defendants have established that they were injured by Plaintiff's conduct as it cannot be said that the hindering and defrauding of Plaintiff's creditors; did not in any way affect the rights between the parties herein (see Levy v. Braverman, supra). In fact, Plaintiff admitted that as a result of the scheme he was not obligated to pay any debts of the corporations. Thus, as a matter of law, the Plaintiff's claims for imposition of a constructive trust and for unjust enrichment are dismissed (see Dolny v. Borck, 61 AD3d 817 [2d Dept. 2009] [plaintiff's admitted involvement in arrangement to convey property to frustrate creditors barred action to compel conveyance of property]; Festinger v. Edrich, 32 AD3d 412 [2d Dept. 2006][action to impose constructive trust upon real property barred where plaintiff's entrustment of property to sister was intended to place assets out of reach of creditors]).
Business Corporation Law §1104-a provides a procedure for a minority shareholder to seek dissolution of a corporation. That section states in relevant part:
§1104-a. Petition for judicial dissolution under special circumstances
(a) The holders of shares representing twenty percent or more of the votes of all outstanding shares of a corporation, no shares of which are listed on a national securities exchange or regularly quoted in an over-the-counter market by one or more members of a national or an affiliated securities association, entitled to vote in an election of directions may present a petition of dissolution on one or more of the following grounds:
(1) The directors or those in control of the corporation have been guilty of illegal, fraudulent or oppressive actions toward the complaining shareholders;
(2) The property or assets of the corporation are being looted, wasted, or diverted for non-corporate purposes by its directors, officers or those in control of Tie corporation.
(Emphasis added).
Where the evidence fails to demonstrate the existence of questions of fact with respect to whether the petitioner has the requisite ownership interest necessary to bring a dissolution proceeding under BCL § 1104-a, a hearing is not necessary and the issue can be determined as a matter of law (Singer v. Evergreen Decorators, Inc., 205 A.D.2d 694 [2d Dept. 1994]). Here, the Plaintiff admitted at his deposition that he was never a shareholder of either L&J or Van Depot. Plaintiff's submissions in opposition to Defendants' motion fail to refute this admission. Thus, the cause of action seeking dissolution under BCL § 1104-a is dismissed because the Plaintiff lacks standing (see Artigas v. Renewal Arts Realty Corp., 22 AD3d 327 [1st Dept. 2005]). Accordingly, it is
ORDERED that the Defendants' motion (Mot. Seq. # 009) for summary judgment dismissing the remaining causes of action in Plaintiff's Second Amended Verified Complaint is granted.
This constitutes the DECISION and ORDER of the Court.
Dated: June 22, 2012
Riverhead, New York
________________
EMILY PINES
J. S. C.
[X ] FINAL
[ ] NON - FINAL