Opinion
11761/11
01-11-2012
Philip Notaro, Jr., Individually and Derivatively on behalf of STERLING TRANSPORT SERVICES, LLC, Plaintiff, v. Sterling Transport Services, LLC and RICHARD GRABER, STEVEN MOSES and ARC HOLDINGS, LLC, Defendants.
, J.
Sterling is a New Jersey limited liability company, which conducts business in New York. Plaintiff Philip Notaro, Jr., a resident of Queens County, has a 25% interest in Sterling. Defendant Richard Graber, a resident of New Jersey, has a 50% interest in Sterling.
Plaintiffs commenced this action on May 13, 2011, and seek to recover money damages for conversion, fraud, misrepresentation, misappropriation, breach of fiduciary duty, unjust enrichment, constructive trust, money had and received, self-dealing, breach of good faith and fair dealing, negligence and theft. Plaintiffs also request an accounting, punitive damages and the appointment of a Fiscal Agent/Receiver.
The dispute between the parties arises out of a July 2000 Pre-Formation Agreement entered into by Philip Notaro, Jr., Richard Graber, and other individuals who are not parties to this action. The agreement provided for the formation of a surface transportation brokerage business, set forth each individual's investment and ownership interest, the names of the individuals who comprised the Board of Directors, the names of the officers, the amount of compensation, incentive compensation, and distribution of company profits. Although the agreement referred to a buy-sell and operating agreement to be prepared and executed, no operating agreement or buy-sell agreement was ever adopted. The Pre-Formation Agreement names Richard Graber as President, and Philip Notaro, Jr., as Secretary of Sterling.
This court in an order dated September 7, 2011 denied the defendants' motion to dismiss the complaint on the grounds of lack of personal jurisdiction, and denied the plaintiff's cross motion for sanctions. The court determined that it had jurisdiction over the defendants. The court further determined that although the Pre-Formation Agreement contains a choice-of-law provision which requires the application of New Jersey law to this action, it did not contain a forum selection clause. Defendants thereafter served their answer on October 13, 2011.
Since its formation in 2000, there have been some changes in the membership of Sterling. Mr. Graber has remained a 50% owner and member, Mr. Notaro formerly a 20% owner became a 25% owner and member, and Steven Moses, a non-party, was formerly a 20% owner became a 25% owner.
Mr. Notaro, in a letter dated June 18, 2009, informed Sterling that he resigned as an officer and member of the Board of Sterling, effective immediately. Mr. Notaro thereafter sought to have Sterling buy out his interest, and was informed by an attorney retained by Graber and Moses, that as he had not resigned as a member of Sterling, under New Jersey law he remained a member of the entity.
On July 22, 2011, Mr. Graber received a letter and document dated July 21, 2011 entitled "Assignment of Membership Interest in Sterling Transport Services, LLC" in which Philip Notaro Jr. assigned his interest to Michael Kofsky. Mr. Kofsky is an attorney and represents the plaintiffs in this action.
Mr. Kofsky, in a letter dated August 5, 2011 and addressed to defendant's counsel, stated that the assignment of Notaro's interest in Sterling to Kofsky had been mutually rescinded; that Kofsky no longer had a conflict of interest with regards to his representation of Notaro in this action; that Notaro officially resigned his membership interests in Sterling, on July 22, 2011 when the assignment was sent to Sterling. Counsel stated that if Graber's counsel disagreed with said date, the August 5, 2011 letter should be deemed as Mr. Notaro's official resignation as a member of Sterling, and that this starts the six-month notice period that Notaro must give Sterling prior to his resignation taking effect.
Counsel for Sterling commenced an action in the Superior Court of the State of New Jersey, Chancery Division, Middlesex County entitled Sterling Transport Services, LLC v Philip Notaro, Jr. (Docket No. C-191-11), and sought in an order to show cause, an order: (a)prohibiting Notaro from contacting Sterling; (b) Terminating any interest Notaro claims to hold in Sterling; (c) a determination that Notaro's interest in Sterling has terminated; (d)determination that Notaro has illegally attempted to assign his interest in Sterling; (e) a determination that Notaro has resigned from Sterling; (f) directing that any fair market value of Notaro's interest, if any, be segregated and paid to Stephen Moses in satisfaction of a judgment against Notaro in a separate New York action; (g)offsetting any fair market value of Notaro's interest by the outstanding accounts owed to Sterling by Marchris Freight Sales & Consulting; (h) compensatory damages; (i) punitive damages; and (j) counsel fees. The same relief is sought in the complaint in that action.
The New Jersey court, in an order dated November 28, 2011, denied the defendant's cross motion to dismiss without prejudice; denied, without prejudice, Sterling's request that Notaro be barred from contacting it during the pendency of the action; and found that "Defendant Philip Notaro Jr.'s resignation in Sterling Transport Services, LLC is hereby deemed accepted, without prejudice to Defendant." Mr. Notaro was directed to file an answer and Sterling was directed to maintain all business records of the company, and the matter was set down for a conference on December 14, 2011.
Plaintiffs in the within order to show cause seek injunctive relief with respect to Mr. Graber and Sterling. It is noted that plaintiffs' counsel attaches to his emergency affidavit dated November 21, 2011, a verified complaint dated November 1, 2011. The same amended verified complaint was filed with the court on December 16, 2011, and added as defendants Steven Moses and Arc Holdings, LLC. However, there is no evidence that the additional defendants Steven Moses and Arc Holdings, LLC were served with a supplemental summons and copy of the amended verified complaint.
New York courts will generally enforce a clear and unambiguous choice-of-law clause contained in an agreement so as to give effect to the parties' intent (see Welsbach Elec. Corp. v MasTec N. Am., Inc., 7 NY3d 624, 629 [2006]; Millennium Falcon Corp. v WRD Sales, Inc., 46 AD3d 862 [2007]; see generally Greenfield v Philles Records, 98 NY2d 562, 569 [2002]; 19A NY Jur Conflict of Laws § 33). However, "under common law rules matters of procedure are governed by the law of the forum" (Martin v Dierck Equip., Co., 43 NY2d 583, 588 [1978]). On the other hand, matters of substantive law fall within the course chartered by choice of law analysis (Tanges v Heidelberg N. Am., 93 NY2d 48, 53 [1999]). New York courts therefore apply contractual choice of law clauses only to substantive issues" (see Educ. Res. Inst., Inc. v Piazza, 17 AD3d 513 [2005]; Sears Roebuck & Co. v Enco Assoc., 43 NY2d 389, 397 [1977]; Melcher v Apollo Med. Fund Mgt. L.L.C., 25 AD3d 482, 483 [2006]. Significantly, "the law of the forum normally determines for itself whether a given question is one of substance or procedure" (Tanges v Heidelberg N. Am., 93 NY2d at 54 [internal quotation marks omitted][1999]; Matter of Frankel v Citicorp Ins. Servs., Inc., 80 AD3d 280 [2010]).
Matters of procedure include remedies and remedial rights. A preliminary injunction is a provisional remedy. In New York, a party moving for a preliminary injunction "must demonstrate by clear and convincing evidence (1) a likelihood of ultimate success on the merits, (2) irreparable injury absent the granting of the preliminary injunction, and (3) that a balancing of equities favors the movant's position'" (EdCia Corp. v McCormack, 44 AD3d 991, 993, [2007], quoting Apa Sec., Inc. v Apa, 37 AD3d 502, 503, [2007] see W.T. Grant Co. v Srogi, 52 NY2d 496, 517, [1981]). The movant must show that the irreparable harm is "imminent, not remote or speculative" (Golden v Steam Heat, 216 AD2d 440, 442, [1995]). The decision to grant or deny a preliminary injunction lies within the sound discretion of the Supreme Court (see Glorious Temple Church of God in Christ v Dean Holding Corp., 35 AD3d 806, 807[2006]).
Proof of a likelihood of success on the merits requires the movant to demonstrate a clear right to relief which is plain from the undisputed facts (Related Properties, Inc. v Town Bd. of Town/Village of Harrison, 22 AD3d 587 [2005]; Abinanti v Pascale, 41 AD3d 395, 396 [2007]; Gagnon Bus Co., Inc. v Vallo Transp. Ltd., 13 AD3d 334, 335 [2004]). Thus, while the existence of issues of fact alone will not justify denial of a motion for a preliminary injunction, the motion should not be granted where there are issues that subvert the plaintiffs likelihood of success on the merits to such a degree that it cannot be said that the plaintiff established a clear right to relief. (Advanced Digital Sec. Solutions, Inc. v Samsung Techwin Co., Ltd., 53 AD3d 612 [2008]), quoting Milbrandt & Co. v Griffin, 1 AD3d 327, 328 [2003]; see also CPLR § 6312[c]). The movant must show that the irreparable harm is "imminent, not remote or speculative" (Golden v Steam Heat, 216 AD2d 440, 442, [1995]). Moreover, "[e]conomic loss, which is compensable by money damages, does not constitute irreparable harm" (EdCia Corp. v McCormack, 44 AD3d at 994; see also Family-Friendly Media, Inc. v Recorder Tel. Network, 74 AD3d 738, [2010]; White Bay Enters., Ltd. v. Newsday, Inc., 258 AD2d 520 [1999]); Schrager v Klein, 267 AD2d 296 [1999]). The decision to grant or deny a preliminary injunction lies within the sound discretion of the Supreme Court (see Glorious Temple Church of God in Christ v Dean Holding Corp., 35 AD3d 806, 807 [2006]).
Similarly, under New Jersey law, injunctive relief is an "extraordinary remedy utilized to forbid and prevent irreparable injury and is administered with discretion upon consideration of justice, equity, and morality in a given case." (Hammer v N.J. Voice, Inc., 302 N.J. Super. 169, 175, 694 A2d 1080 [1996], citing Coskey's Television & Radio Sales and Serv., Inc. v. Foti, 253 N.J. Super. 626, 639, 602 A2d 789 [1992]). In order for a court to grant a preliminary injunction, the moving party bears the burden of establishing: (1) there is a reasonable probability of success on the merits; (2) there is a settled legal right supporting the claim; (3) the injunction is necessary to prevent irreparable harm; and (4) the relative hardship to the parties in granting or denying relief favor granting relief. Moreover, the granting of such relief should be as narrow as possible in order to safeguard the status quo pending a plenary hearing on the merits. (Crowe v De Gioia, 90 N.J. 126, 132 447 A2d 173 [1982].)
Plaintiffs have not demonstrated that they are entitled to a preliminary injunction. As plaintiffs seek to recover monetary damages, they have failed to establish that they will sustain irreparable harm, absent an injunction.
Plaintiffs have also failed to demonstrate that the defendants have threatened or are about to withdraw, transfer otherwise access the monies held in any and all banks, financial institution, brokerage firm or other monetary or asset fund held by, or on behalf of Sterling without the authorization of Sterling's members Philip Notaro, Jr., and Steven Moses.
Plaintiffs have also failed to demonstrate that defendants have or are about to distribute, transfer, convey otherwise disposing of any and all monies received by Sterling without the authorization of both of Sterling's members Philip Notaro, Jr., and Steven Moses.
The Pre-Formation Agreement provides that Graber will be responsible for running the day-to-day activities of Sterling, and provides that checks from the company's account "shall require the signature of Graber and one of the Investors". Said agreement identifies Steven Moses and Philip Notaro Jr., as investors. The agreement, however, does not require that Graber or Sterling obtain authorization from both Moses and Notaro before engaging in any of the financial transactions described above. Defendants therefore are not required to seek the authorization of both Moses and Notaro before engaging in said financial transactions.
Plaintiffs have failed to demonstrate that defendants have or are about to destroy or purge any computers, hard drives, documents, files, records, including electronic records and communications, notes, memos, books and client files pertaining to Sterling, including all checkbooks, deposit slips and other records of Sterling's accounts maintained at any bank or other financial institution. It is noted that Sterling is presently subject to an order of the court in New Jersey which directed it to preserve all corporate records.
Plaintiffs have failed to demonstrate that Sterling is presently about to issue company checks that do not conform to Paragraph 16 of the Pre-Formation Agreement. It is noted that Paragraph 16 of Sterling's Pre-Formation Agreement provides that checks drawn on the company's bank accounts "shall require the signature of Graber and one of the Investors". Said agreement identifies the Investors as Steven Moses and Philip Notaro, Jr. It is noted that on January 29, 2004, Graber, Moses, Notaro and Alan Marshuetz(identified in the Pre-Formation Agreement as a "working member" of Sterling) executed "Amendment to Partnership Agreement for Sterling Transport Services", whereby Sterling's members agreed that "Company Checks drawn on Account No.8015981696 will require only one(1) authorized signature on checks not to exceed $5000.00. Over said amount will require two (2) authorized signatures as stated in the original Partnership Agreement on file."
Although Mr. Notaro executed said amendment, he now asserts that the Pre-Formation Agreement, by its terms, could not be amended in this manner as neither an operating agreement, nor a buy-sell agreement was prepared and executed. Under New Jersey law, the members of a limited liability company, "may, but are not required to, adopt a written operating agreement' which is a contract containing, among other things, their agreements regarding voting, management and economic rights. However, if no operating agreement is adopted, the LLC is governed by the default provisions of the LLC Act." (2-18 NJ Corporations and Other Business Entities § 18.01). Plaintiffs have not established that under New Jersey law that the terms of the Pre-Formation agreement govern here following the formation of the limited liability company. Nor have plaintiffs established that the so-called amendment to the "partnership agreement" does not constitute a post-formation operating agreement with respect to company checks written on the specified account.
Furthermore, it is noted that Mr. Notoro has resigned his membership in Sterling. As a disassociated member, Mr. Notaro "has, subject to section 39 of P.L.1993, c. 210 (C. 42:2B-39), only the rights of an assignee of a member's limited liability interest."(N.J. Stat. § 42:2B-24.1). "Among other things, a dissociated member has no right to participate in the management of the LLC unless the operating agreement otherwise provides and the other members have so approved. Dissociated members are, however, entitled to receive the distributions to which a resigning member is entitled, the valuation date for which will be the date of the dissociation"(2-18 NJ Corporations and Other Business Entities § 18.10; see also N.J. Stat. §42:2B-44). Mr. Notaro, however, has not established that as a disassociated member he retains any right to co-sign company checks.
Plaintiffs' request for the appointment of a fiscal agent to manage and control Sterling's assets, files and accounts is denied. The appointment of a "fiscal agent" is reserved to the courts of New Jersey, in New Jersey actions.(see generally Kassover v Kassover, 312 N.J. Super. 96, 711 A2d 360 [1998]; Roach v Margulies, 42 N.J. Super. 233, 116 A2d 45 [1956]).
To the extent that plaintiffs seek the appointment of a temporary receiver pursuant to CPLR 6401(a), "[t]he appointment of a temporary receiver is an extreme remedy resulting in the taking and withholding of possession of property from a party without an adjudication on the merits" (Vardaris Tech, Inc. v Paleros Inc., 49 AD3d 631, 632 [2008] [internal quotation marks omitted]; see Schachner v Sikowitz, 94 AD2d 709 [1983]). Accordingly, a temporary receiver should only be appointed where there is a clear evidentiary showing of the necessity for the conservation of the property at issue and the need to protect a party's interests in that property (see Vardaris Tech, Inc. v Paleros Inc., 49 AD3d at 632; Singh v Brunswick Hosp. Ctr., 2 AD3d 433, 434-435 [2003]; Matter of Armienti & Brooks, 309 AD2d 659, 661 [2003]; Lee v 183 Port Richmond Ave. Realty, 303 AD2d 379, 380 [2003]; Modern Collection Assoc. v Capital Group, 140 AD2d 594 [1988]; Schachner v Sikowitz, 94 AD2d at 709). Here, the evidence presented does not clearly establish the necessity to conserve Sterling's assets, or the need to protect any interest Notaro has as a disassociated member of Sterling in the limited liability company's assets (see Quick v Quick, 69 AD3d 828[2010]; Mandel v Grunfeld, 111 AD2d 668 [1985]). Therefore, to the extent that plaintiffs request the appointment of a temporary receiver, said request is denied.
Plaintiff Notaro's request for an order directing defendants to turn over to him all books, records and files of Sterling, within 10 days of the receipt of said order, is denied. Plaintiff Notaro has not established that he has any right to possess the books, records, and files of Sterling.
Plaintiff Notaro's request that for an order directing defendants to pay the sum of $48,604.09, plus interest of 6% from 2003 is denied. Plaintiff Notaro maintains that he was not paid the full amount of his share of the profits in Sterling from 2003 to 2010, and that this sum represents the amounts owed to him. The complaint, however, does not specifically allege a cause of action to recover underpaid profits, and plaintiffs' allegations and documentary evidence is insufficient to establish that Notaro was not paid his full share of Sterling's profits for the years in question.
Finally, plaintiffs' request for attorneys fees and costs incurred in this motion is denied.
Accordingly, plaintiffs' motion for injunctive and related relief is denied in its entirety.
Dated: Long Island City, NY
January 11, 2012
______________________________
ROBERT J. McDONALD
J.S.C.