Thomas F. Whelan

DAVID M. NAMM, PC Atty. For Petitioner

BRACKEN, MARGOLIN BESUNDER Attys. For Respondents

Thomas F. Whelan, J.

Upon the following papers numbered 1 to 12read on this motiondismissal of the petition for judicial dissolution of the corporate respondents; Notice of Motion/Order to Show Cause and supporting papers 1 - 5; Notice of Cross Motion and supporting papers; Answering Affidavits and supporting papers6-9; Replying Affidavits and supporting papers10-12; Other; (and after hearing counsel in support and opposed to the motion) it is,

ORDERED that this cross motion (#002) by the respondents for dismissal of the petition which seeks judicial dissolution of the corporate respondents is considered under BCL Article 11 and CPLR 404(a) and is denied.

In this special proceeding for relief pursuant to BCL § 1104-a, the petitioner seeks the judicial dissolution of the two, closely-held corporations named as respondents in the caption. Therein, the petitioner claims to be the owner of 22% interest in respondent, Front Door Associates, Inc. (hereinafter "Front Door") and the owner of a 50 % interest in respondent Perkel Management Corp. (hereinafter "Perkel"). In lieu of answering, the corporate respondents move to dismiss the petitioner's demands for dissolution of Front Door on the grounds that the petitioner lacks standing to proceed due to his lack of a 20% ownership interest in Front Door as required by BCL § 1104-a. The respondents also seek dismissal of the petition insofar as it is asserted against Perkel due to the purported lack of merit with respect to the petitioner's claims of oppressive and/or other actionable conduct.

Those portions of the instant cross motion wherein the respondents seek dismissal of the petitioner's claim for dissolution of respondent Perkel are denied. The instant proceeding is a special proceeding that is authorized by Article 11 of the Business Corporation Law (BCL). It procedural aspects are governed by the provisions of Article 4 of the CPLR except to the extent that BCL Article 11 or some other applicable statute provides otherwise (see CPLR 101). The claims asserted herein may be determined summarily by the court, except where one or more issues of fact have been raised as to the merits of the asserted claim for dissolution or the appropriateness of a remedy, in which event, the court must hold a hearing of the type contemplated by BCL § 1109 (see In Re WTB Prop., Inc. , 291 AD2d 566, 737 NYS2d 654 [2d Dept 2002]; see also In Re Quail Aero Serv., Inc. , 300 AD2d 800, 755 NYS2d 103 [2d Dept 2002]).

Pursuant to CPLR 404, legal defenses to claims asserted in a special proceeding must be raised in an answer as objections in points of law or in a pre-answer motion to dismiss. The term "objection in point of law", which is similarly employed in CPLR 7804(f), is not statutorily defined. Case authorities have held, however, that such objections should not involve a contest on the merits of the targeted claims, but instead, should be limited to the assertion of one or more of defenses in bar of the type contemplated by CPLR 3211(a) (see Garcia v Rhea , 85 AD3d 549, 924 NYS2d 790 [1st Dept 2011]; In Re Bernstein Family, Ltd. Partnership , 66 AD3d 1, 883 NYS2d 201 [1st Dept 2009]; 1300 Franklin Ave. Members, LLC v Board of Trustees of Inc. Vil. of Garden City , 62 AD3d 1004, 880 NYS2d 133 [2d Dept 2009]; Matter of Ruvio , 305 AD2d 688, 761 NYS2d 238 [2d Dept 2003]). Accordingly, motions to dismiss special proceedings interposed pursuant to CPLR 404 or 7804(g) should be predicated upon defenses in bar, such as failure to state a claim, lack of standing or capacity to sue, statute of limitations, accord and satisfaction, res judicata and the others contemplated by CPLR 3211(a) (see In Re Bernstein Family, Ltd. Partnership , 66 AD3d 1, supra; 1300 Franklin Ave. Members, LLC v Board of Trustees of Inc. Vil. of Garden City , 62 AD3d 1004, supra; East End Property Co. #1, LLC v Planing Bd. of Town of Brookhaven , 56 AD3d 773, 867 NYS2d 685 [2d Dept 2008]).

Here, the portions of the respondent's cross motion that are aimed at dismissal of the plaintiff's claims for dissolution of respondent, Perkel, are not predicated upon objections in points of law within the contemplation of CPLR 404 and 3211(a). Instead, the respondents challenge the merits of the plaintiff's claims for such relief by disputing the factual assertions set forth in the petition regarding the allegedly wrongful conduct which form the basis for the petitioner's demands for dissolution of Perkel under BCL 1104-a. Since such challenges are beyond the scope of this pre-answer application, the respondents' cross motion for dismissal of the petitioner's demands for dissolution of Perkel is denied. To the extent that the respondents' challenges may be read as being predicated upon legal insufficiency, they are rejected as unmeritorious (see Matter of Kemp & Beatley , 64 NY2d 63, 72—73, 484 NYS2d 799 [1984]; In re El-Roh Realty Corp .,48 AD3d 1190, 851 NYS2d 777 [4th Dept 2008]).

Also denied are the remaining portions of the instant cross motion wherein the respondents seek dismissal of the petitioner's demands for dissolution of respondent, Front Door. Vastly different reasons underlie such denial as these portions of the respondents' cross motion are predicated upon a quintessential defense in bar, namely, that the petitioner lacks "standing" to prosecute his claims in this dissolution proceeding (see Wells Fargo Bank Minn., N.A. v Mastropaolo , 42 AD3d 239, 242, 837 NYS2d 247 [2d Dept 2007]).

The issue of a petitioner's 20% shareholder interest in the corporation that is the subject of a dissolution proceeding brought under BCL 1104-a has been referred to as a "threshold" issue (see BCL 1104-a; Shea v Hambros PLC , 244 AD2d 39, 673 NYS2d 369 [1st Dept 1998]). The possession of such interest may thus be viewed as a statutory condition precedent to the commencement of such a proceeding which must be pleaded and proved by the petitioner (see generally Aurora Loan Serv., LLC v Weisblum , 85 AD3d 95, 923 NYS2d 609 [2d Dept 2011]; see also Matter of Kournianos, 175 AD2d 129, 571 NYS2d 823, ); cf., Pappas v Corfian Enter., Ltd. , 76 AD3d 679, 907 NYS2d 678 [2 Dept 2010). Unlike the issue of claimant's standing, which is an affirmative defense belonging to a respondent or defendant that is waived if not raised by him or her (see Wells Fargo Bank Minn., N.A. v Mastropaolo , 42 AD3d 239, 242, supra), satisfaction of a statutory condition precedent is an element of the claim itself (see Aurora Loan Services, LLC v Weisblum , 85 AD3d 95, supra; Maxwell v City of New York , 29 AD3d 540, 815 NYS2d 133 [2d Dept 2006]). The failure to establish satisfaction thereof may warrant dismissal of the claim by the court itself by reason of a failure of proof (see Dorce v United Rentals No. Am., Inc ., 78 AD3d 1110, 915 NYS2d 79 [2d Dept 2010]; Aurora Loan Serv., LLC v Weisblum , 85 AD3d 95, supra). Alternatively, dismissal may result upon a motion made, at any time, pursuant to CPLR 3211(a)(7) (see Barnaman v New York City Health and Hosp. Corp., __ AD3d ___ , 2011 NY Slip Op 08891 [2d Dept 2011]; Urena v New York City Health and Hosp. Corp ., 35 AD3d 446, 825 NYS2d 529 [2d Dept 2006]; Maxwell v City of New York , 29 AD3d 540, supra). The burden of establishing the requisite ownership interest in a corporation that is the subject of a dissolution proceeding thus rests with the petitioner (see Pappas v Corfian Enter., Ltd. , 76 AD3d 679, supra; Matter of Kournianos, 175 AD2d 129, supra).

In proceedings such as the instant one, wherein the petitioner seeks dissolution of closely held corporation and the petitioner's claim of a 20% or more ownership interest in such corporation has been challenged by a pre-answer motion interposed pursuant to CPLR 404, some courts have held hearings to aid the court's determination of the threshold ownership issue in those cases where the record is replete with factual issues (see Matter of Ruvio , 305 AD2d 688, supra; Matter of Pickwick Realty, Ltd. , 158 AD2d 840, 551 NYS2d 425 [3d Dept 1990]; see also Klasus v MacDonald, 30 Misc 3d 1221(a), 924 NYS2d 310 [Sup. Ct. Suffolk County 2011]; Pappas v Corfian Enter., Ltd. , 76 AD3d 679, supra). In other special proceeding contexts, such as Article 78 proceedings, appellate courts have held it appropriate to deny pre-trial motions where issues of fact exist, without prejudice to the assertion of appropriate affirmative defenses in an answer, thereby leaving threshold issues presented on the pre-answer motion to the court's ultimate determination of the proceeding (see Matter of East End Resources, LLC. v Town of Southold Planning Bd. , 81 AD3d 947, 917 NYS2d 315[2d Dept 2011]; see also Garcia v Rhea , 85 AD3d 549, 924 NYS2d 790 [1st Dept 2011]).

In support of their cross motion to dismiss the claims of dissolution of Front Door, the respondents contend that the petitioner's ownership interest in Front Door is limited to 8% since only eight shares of stock, out of the 100 issued by Front Door, are held by the petitioner. They further contend that the petitioner breached the terms of the December 1, 2001 stockholders agreement and thus has not been issued any stock certificates since the purported breach in 2004. In response, the petitioner claims that Front Door's principal has wrongfully withheld issuance of the shares to which the petitioner is entitled under the December 10, 2001 shareholders agreement. Morever, the petitioner claims to have contributed work, labor and services which entitles him the ownership interest he is due under the terms of the shareholders agreement and that evidence of his ownership of at least 20% of the stock is documented in corporate filings issued by Front Door. The petitioner further claims that he should not be non-suited at this stage of the proceeding in light of the wrongful withholding of the stock by Front Door's majority shareholder and that discovery is necessary to further aid his ability to establish the requisite ownership interest in Front Door.

The fact that fact that a claimant's name does not appear on a record of stockholders or the fact that he does not physically possess stock certificates is not dispositive of the issue of ownership because such facts are not conclusive evidence of not owning stock (see U.S. Radiator Corp. v State of New York , 208 NY 144, 101 NE 783 [1913]; Benincasa v Garrubbo , 141 AD2d 636, 529 NYS2d 797 [2d Dept 1988]). The burden of establishing shareholder status may be satisfied in a number of ways, including tendering proof of share certificates; the existence of an agreement between parties demonstrating an intent to form a corporation; tax records; as well as the conduct of the parties which may evidence exercise of functions consistent with shareholder status (see U.S. Radiator v State of New York , 208 NY 144, supra; Matter of Heisler v Gingras , 90 NY2d 682, 665 NYS2d 59 [1997]; Matter of Estate of Purnell v LH Radiologists , 90 NY2d 524, 664 NYS2d 238 [1997].

Here, the court finds that there are various unresolved issues of fact regarding whether the petitioner owns the requisite 20% interest in the respondent Front Door. The court further finds that in light of the procedural posture of this proceeding, determination of the threshold issue of the petitioner's ownership should be made as part of the court's ultimate determination of the petition, as the same includes the petitioner's separate dissolution claims with respect to Perkel.

The instant motion (#002) by the respondents for dismissal of the petition is thus denied. Such denial is, however, without prejudice, to the interposition of an answer containing affirmative defenses to the petitioner's claims for relief, including one alleging that the petitioner cannot satisfy the statutory condition precedent imposed by BCL 1104-a upon the petitioner relative to his claimed ownership of 20% or more of the stock of Front Door. The respondents must serve and file their answers within 30 days of the date of this order.

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THOMAS F. WHELAN, J.S.C.