Opinion
Index No. 720072/2023
03-27-2024
Gerasimos Pagoulatos, DENNIS MOSHOPOULOS, and NICK MOSHOPOULOS, individually and derivatively on behalf of EGB HOSPITALITY, LLC, n/k/a TRAHANAS HOSPITALITY, LLC, Plaintiffs, v. Elias Trahanas, HARILAOS TRAHANAS, a/k/a BOBBY TRAHANAS, and TRAHANAS HOLDINGS, LLC, Defendants, and EGB HOSPITALITY, LLC, n/k/a TRAHANAS HOSPITALITY, LLC, Nominal Defendant.
Unpublished Opinion
Leonard Livote, J.
The following papers numbered below read on this motion by Defendants for an Order: (1) dismissing Plaintiffs' Verified Complaint (NYSCEF Doc. No. 1), with prejudice, pursuant to CPLR 3211(a)(1) and (a)(7); (2) staying discovery pending the Court's determination of this Motion, pursuant to Commercial Division Rule 11(g) and CPLR 3214(b); and (3) granting the Defendants any other and/or further relief as this Court deems just and proper.
PAPERS NUMBERED
Notice of Motion, Affirmation, Affidavits and Exhibits. 58-66, 81
Cross Motion, Affirmation, Affidavits and Exhibits
Answering Affirmations, Affidavits And Exhibits. 99-107
Reply Affirmations, Affidavits And Exhibits 108
Other
Upon the foregoing papers, the motion is decided as set forth below.
The individual parties formed EGB Hospitality, LLC ("EGB") for the purpose of bidding on a license from Nassau County to operate and manage an event space and catering hall located within Eisenhower Park in East Meadow, New York (the "Licensed Premises"). On or about March 10, 2022, EGB was awarded the license to operate and manage the facilities at the Licensed Premises. The license agreement between EGB and Nassau County was fully executed on May 11, 2022 ("License Agreement"). In April 2022, each of the EGB members certified in a filing with Nassau County that Plaintiff Gerasimos Pagoulatos held a 20% membership interest, Plaintiff Dennis Moshopoulos held a 15% membership interest, Plaintiff Nick Moshopoulos held a 15% membership interest, Defendant Elias Trahanas held a 25% membership interest and Defendant Bobby Trahanas held a 25% membership interest. Plaintiffs allege that the Defendants Bobby and Elias Trahanas have since wrongfully frozen them out and deprived them of their interests in the business. Plaintiffs claim that Defendants established a company called Trahanas Holdings, LLC, for the purpose of taking over EGB and acquiring its assets without Plaintiffs' consent. Plaintiffs initiated this action asserting both individual and derivative claims against Defendants. Defendants now move to dismiss Plaintiffs' claims.
"On a motion to dismiss the complaint pursuant to CPLR 3211(a)(7) for failure to state a cause of action, the court must afford the pleading a liberal construction, accept all facts as alleged in the pleading to be true, accord the plaintiff the benefit of every possible inference, and determine only whether the facts as alleged fit within any cognizable legal theory" (Rabos v. R & R Bagels & Bakery, Inc., 100 A.D.3d 849, 2012 NY Slip Op 07974, 2012 WL 5870676 [2nd Dept 2012]).
To grant a motion to dismiss due to "a defense that is founded upon documentary evidence" pursuant to CPLR §3211(a)(1), the evidence in question must "utterly refute the plaintiff's allegations and establish a defense as a matter of law" (see Goshen v. Mutual Life Ins. Co., 98 N.Y.2d 314,[2002]). "To be considered 'documentary,' evidence must be unambiguous and of undisputed authenticity" (Fontanetta v Doe, 73 A.D.3d 78, 86 [2d Dept 2010]).
Defendants first argue that Plaintiffs' direct claims must be dismissed because they allege harms to EGB, not to Plaintiffs directly. A wrong suffered directly by an LLC (or corporation) may not be brought by members thereof in an individual capacity (see Patterson v Calogero, 150 A.D.3d 1131, 1133 [2d Dept 2017]; Austin v Gould, 168 A.D.3d 626, 627 [1st Dept 2019]). The pertinent inquiry in determining whether a claim is properly brought as a direct claim is whether the thrust of the plaintiff's action is to vindicate his personal rights as an individual and not as a member on behalf of the LLC (see Craven v Rigas, 85 A.D.3d 1524, 1527 [3d Dept 2011]). Where it is the plaintiff who suffered the alleged harm and would receive the benefit of any recovery or other remedy, the plaintiff may properly bring a direct claim (Meseonznik v Govorenkov, 36 Misc.3d 1240(A) [Sup Ct 2012]). Further, an act that harms the company may also give rise to a direct claim so long as the act effects a separate and distinct wrong to the shareholder independently of the wrong to the company (Tornick v Dinex Furniture Indus., Inc., 148 A.D.2d 602, 603 [2d Dept 1989]). In the instant case, Plaintiffs properly plead direct harm. The basis of Plaintiffs' direct claims is that Defendants wrongfully misappropriated Plaintiffs' ownership interests and excluded them from the business. Plaintiffs allege that Defendants converted their ownership interests, removed them as members of EGB, and froze them out of the business. It is Plaintiffs themselves that suffered these alleged harms, and the direct claims seek to redress Plaintiffs' personal rights of ownership. Accordingly, Plaintiffs' direct claims will not be dismissed on these grounds.
Next, Defendants argue that Plaintiffs lack standing to asset derivative claims on behalf of EGB because they are no longer members. Defendants contend that in March 2023, Plaintiffs assigned 100% of their membership interest and ceased to be members of EGB. Defendants issued three checks to Plaintiffs totaling $1.72-million, and Plaintiffs accepted and cashed these checks. Defendants contend that they issued these checks in consideration for the assignment of Plaintiffs' membership interests in EGB. Plaintiffs', on the other hand, contend that the checks were provided were not a return of all of their capital, were unexpected, and not given as part of any assignment or buyout, but as pretext to attempt to remove them from the company. These conflicting contentions constitute a factual dispute as to whether Plaintiffs' membership interests were assigned, and the checks are not documentary evidence utterly refuting Plaintiffs' derivative claims and establishing a defense as a matter of law. Accordingly, dismissal of Plaintiffs' derivative claims is not warranted on standing grounds at this stage in the proceedings.
With respect to Plaintiffs' first cause of action for a declaratory judgment, Defendants argue the claim must be dismissed as duplicative of Plaintiffs' contract-based claim. "The primary purpose of a declaratory judgment is to stabilize an uncertain or disputed jural relationship with respect to present or prospective obligations" (Chanos v MADAC, LLC, 74 A.D.3d 1007, 1008 [2d Dept 2010]). Here, the declaratory judgment claim seeks a declaration that Plaintiffs remain 50% members of EGB/ Trahanas Hospitality, LLC while the contract-based claim seeks monetary damages relating to, inter alia, Plaintiffs' alleged wrongful ouster from the business. The contract-based claim alone would not settle the extent of Plaintiffs' membership interest and right to management of the business. Thus, the two claims are not duplicative. Accordingly, dismissal is not warranted, and the branch of the motion to dismiss Plaintiffs' first cause of action for a declaratory judgment is denied.
With respect to Plaintiffs' second and third causes of action for breach of fiduciary duty, Defendants argue that the breach of fiduciary duty claims are not pled with sufficient particularity and are based on purported contractual duties. The second cause of action is a derivative claim for breach of fiduciary duty, and the third cause of action is an individual claim. The elements of breach of fiduciary duty are: "(1) the existence of a fiduciary relationship, (2) misconduct by the defendant, and (3) damages directly caused by the defendant's misconduct" (Berkovits v Berkovits, 190 A.D.3d 911, 916 [2d Dept 2021]). Speculative damages are insufficient to maintain a cause of action for breach of fiduciary duty (Philip S. Schwartzman, Inc. v Pliskin, Rubano, Baum & Vitulli, 215 A.D.3d 699, 702 [2d Dept 2023]). A breach of fiduciary claim must be pled with particularity, stating in detail the circumstances constituting the wrong (CPLR 3016(b); Palmetto Partners, L.P. v AJW Qualified Partners, LLC, 83 A.D.3d 804, 808 [2d Dept 2011]).
Here, Plaintiffs plead both derivative and individual breach of fiduciary duty claims. Plaintiffs' derivative claim is based on the allegation that Defendants might have wrongfully transferred EGB's license and other assets to another company. Plaintiffs contend that Defendants stripped EGB of its assets, but their allegations are vague and speculative. Plaintiffs rely upon only a possibility that the license was transferred. Plaintiffs allege that Defendants have harmed EGB "to the extent" that the license was transferred to another entity and contend that they have exposed EGB to potential liability. Stated differently, Plaintiffs claim that Defendants might have transferred the license, and if they did, EGB might face liability. This type of speculative harm is insufficient to state a cause of action for breach of fiduciary duty. As for other assets, Plaintiffs fail to identify which assets were transferred and to whom. Accordingly, the branch of the motion to dismiss Plaintiffs' second cause of action for breach of fiduciary duty is granted.
With respect to Plaintiffs individual claim, Plaintiffs allege they were harmed by Defendants ousting them from the company, misappropriating their membership interests, and freezing them out of the business. Plaintiffs' allegations are set forth in detail. Additionally, Plaintiffs' allegations that Defendants enriched themselves at Plaintiffs' expense go beyond the violation of purported contractual duties. Accordingly, the branch of the motion to dismiss Plaintiffs' third cause of action for breach of fiduciary duty is denied.
Plaintiffs fourth cause of action is for tortious interference with contract. "The elements of tortious interference with contractual relations are (1) the existence of a contract between the plaintiff and a third party, (2) the defendant's knowledge of the contract, (3) the defendant's intentional inducement of the third party to breach or otherwise render performance impossible, and (4) damages to the plaintiff" (Anesthesia Assoc. of Mount Kisco, LLP v N. Westchester Hosp. Ctr., 59 A.D.3d 473, 476 [2d Dept 2009]). Here, Plaintiffs fail to plead that Defendants induced a third party to breach a contract, which then harmed EGB. Plaintiffs allege that Defendants induced EGB to breach the license. An allegation that a business owner caused their own business to breach a contract does not state a claim for tortious interference with contract. Accordingly, the branch of the motion to dismiss Plaintiffs' fourth cause of action for tortious interference with contract is granted.
Plaintiffs fifth cause of action is for corporate waste. "The essence of a waste claim is the diversion of corporate assets for improper or unnecessary purposes" (SantiEsteban v Crowder, 92 A.D.3d 544, 546 [1st Dept 2012]). To prevail on a claim for corporate waste, an objecting owner must establish that "no person of ordinary sound business judgment would say that the corporation received fair benefit" from a given transaction (see Aronoff v Albanese, 85 A.D.2d 3, 5 [2d Dept 1982]). A plaintiff sufficiently states a cause of action for waste where the plaintiff alleges facts from which waste may reasonably be inferred (see id.). Here, Plaintiffs' allegations are insufficient to state a claim for waste. Plaintiffs' waste claim is based primarily on the allegation that Defendants might have transferred the license to another entity; however, Plaintiffs' fail to explain why they believe the license may have been transferred. Plaintiffs' fail to allege any facts to support their allegation that the license might have been transferred. The allegations in Plaintiffs' Complaint are also speculative in that they only allege that the license might have been transferred. Further, assuming arguendo that Defendants did transfer the license to another entity, Plaintiffs' fail to allege facts that would support an inference that EGB did not receive a fair benefit from the transfer. Plaintiffs' allegations surrounding a possible transfer of the license are entirely speculative and conclusory. As such, Plaintiffs' allegations are insufficient to state a cause of action for waste. Plaintiffs' other allegations regarding the incurring of debt fail to state a cause of action waste for the same reasons. Accordingly, the branch of the motion to dismiss Plaintiffs' fifth cause of action for corporate waste is granted.
Next, Plaintiffs' sixth and seventh causes of action assert derivative and individual claims for conversion. "A conversion takes place when someone, intentionally and without authority, assumes or exercises control over personal property belonging to someone else, interfering with that person's right of possession" (Colavito v New York Organ Donor Network, Inc., 8 N.Y.3d 43, 49-50 [2006]). "[T]o establish a cause of action in conversion, the plaintiff must show legal ownership or an immediate superior right of possession to a specific identifiable thing and must show that the defendant exercised an unauthorized dominion over the thing in question, to the alteration of its condition or to the exclusion of the plaintiff's rights" (Indep. Discount Corp. v Bressner, 47 A.D.2d 756, 757 [2d Dept 1975]). "Tangible personal property or specific money must be involved" (Id.). Here, Plaintiffs' derivative claim is based on the alleged conversion of EGB's rights to the license, and Plaintiffs' direct claim is based on the alleged conversion of Plaintiffs' membership interests in EGB, and Plaintiffs' belongings stored in EGB's office. With respect to the derivative claim, Plaintiffs fail to identify tangible personal property or a specifically identifiable thing. A license is intangible (see Spiegel v Quality Bakers of Am. Co-op., Inc., 91 CIV. 5703 (KTD), 1992 WL 349799, at *7 [SDNY Nov. 10, 1992]). The license is a contract granting EGB the right to operate and manage the Licensed Premises; it is not tangible property. Thus, as a matter of law, Defendants could not have converted the license. Accordingly, the branch of the motion to dismiss Plaintiffs' sixth cause of action for conversion is granted.
Plaintiffs' seventh cause of action is a direct claim for conversion. Plaintiffs allege that Defendants have prevented them from accessing or retrieving their computer from EGB's office. The computer is specifically identifiable tangible personal property. Thus, Plaintiffs have stated a cause of action for conversion. Accordingly, the branch of the motion to dismiss Plaintiffs' seventh cause of action for conversion is denied.
Plaintiff's eighth cause of action is to compel inspection of books and records. Members of an LLC may inspect the LLC's books and records subject to certain limitations (NY LLC Law 1102(b)). Defendants argue that Plaintiffs are not entitled to EGB's books and records because Plaintiffs are not members. However, Plaintiffs' membership status is in dispute in this very action. Further, if Plaintiffs are members, they are entitled to inspect some of EGB's books and records even if not all the records they are currently seeking. Accordingly, the branch of the motion to dismiss Plaintiffs' eighth cause of action to compel books and records is denied.
Plaintiffs' ninth cause of action alleges breach of contract and violation of the LLC law. "The elements of a cause of action for breach of contract are the existence of a contract between the plaintiff and defendant, consideration, performance by the plaintiff, breach by the defendant and damages resulting from the breach" (Sheppard v Advanced Acoustic Concepts, Inc., 22 Misc.3d 1112 (A) [Sup Ct 2009]). It is undisputed that the parties were at one time all members of EGB. Thus, the parties were in a contractual relationship with each other. Plaintiffs allege that while they were members, Defendants breached their agreement by taking several business actions on behalf EGB without the required notice and vote of all members. Plaintiffs also allege performance on their part and damages. Plaintiffs' allegations are sufficient to state a cause of action for breach of an oral contract. Accordingly, the branch of the motion to dismiss Plaintiffs' ninth cause of action for breach of contract is denied.
With respect to Plaintiffs' tenth cause of action for unjust enrichment, Plaintiffs' may plead unjust enrichment as an alternative to their breach of contract claim. Plaintiffs' allegation that Defendants enriched themselves at Plaintiffs' expense by misappropriating their membership interests is sufficient to state a cause of action for unjust enrichment. Accordingly, the branch of the motion to dismiss Plaintiffs' tenth cause of action for unjust enrichment is denied.
Next, Plaintiffs in their eleventh cause of action assert a claim for recission of certain transactions. Plaintiffs argue that Defendants' failed to provide the required notice or obtain majority approval before allegedly transferring the license away from EGB. As discussed above, Plaintiffs only speculate that the license might have been transferred and offer no explanation as to why they believe the license was transferred. Plaintiffs fail to identify any other transactions they seek to rescind. Accordingly, the branch of the motion to dismiss Plaintiffs' eleventh cause of action for recission is granted.
Plaintiffs' twelfth cause of action is for an accounting. "[T]he right to an accounting is premised upon the existence of a fiduciary relationship and a breach of the duty imposed by that relationship respecting property in which the party seeking the accounting has an interest" (LoGerfo v Trustees of Columbia Univ. in City of New York, 97 A.D.3d 547, 548 [2d Dept 2012]). The facts alleged by Plaintiffs are sufficient to state a claim for breach of fiduciary duty with respect to any unreturned capital contributions and any income Plaintiffs' may be entitled to. Thus, Plaintiffs have stated a claim for an accounting. Accordingly, the branch of the motion to dismiss Plaintiffs' twelfth cause of action for an accounting is denied.
Plaintiffs' thirteenth cause of action claims successor liability against Trahanas Holdings. Generally, an entity cannot be held liable for the conduct of its predecessor under a theory of successor liability, unless: (1) a buyer formally assumes a seller's debt; (2) a transaction is undertaken to defraud creditors; (3) when a buyer is de facto merged with a seller, or (4) when a buyer is a mere continuation of the seller (Schumacher v Richards Shear Co., Inc., 59 N.Y.2d 239, 245 [1983]). If the predecessor entity survives as a distinct entity, there can be no successor liability under a mere continuation or de facto merger theory unless the predecessor has been rendered a shell (Fitzgerald v Fahnestock & Co., Inc., 286 A.D.2d 573, 575 [1st Dept 2001]. Here, Plaintiffs argue that there was a de facto merger of EGB and Trahanas Holdings and/or that Trahanas Holding is a mere continuation of EGB. EGB remains active under the name Trahanas Hospitality. Plaintiffs allege that Defendants have rendered EGB/Trahanas Hospitality a shell by transferring substantially all EGB's assets, principally the license, to Trahanas Holdings. Defendants claim, however, that EGB is still actively operating the Licensed Premises. As discussed above, nowhere in Plaintiffs' complaint or motion papers do they offer any explanation as to why they believe the license or any other assets were transferred from EGB to Trahanas Holdings. Further, they can only speculate that they believe the license might have been transferred. Plaintiffs must allege some facts that offer a basis for their allegation that the license was transferred, and because they fail to do so, Plaintiffs fail to sufficiently plead successor liability. Accordingly, the branch of the motion to dismiss Plaintiffs' thirteenth cause of action for successor liability is granted.
Plaintiffs in their fourteenth and fifteenth causes of action assert derivative and direct claims for a permanent injunction. "To sufficiently plead a cause of action for a permanent injunction, a plaintiff must allege that there was a violation of a right presently occurring, or threatened and imminent, that he or she has no adequate remedy at law, that serious and irreparable harm will result absent the injunction, and that the equities are balanced in his or her favor" (Caruso v Bumgarner, 120 A.D.3d 1174, 1175 [2d Dept 2014]). Here, Plaintiffs sufficiently plead each element. Plaintiffs allege that Defendants are violating their ownership and management rights in EGB and are stripping EGB of its assets and permanently altering the company. These allegations, if true, could not be adequately remedied by money damages alone. Accordingly, the branch of the motion to dismiss Plaintiffs' fourteenth and fifteenth causes of action for a permanent injunction is denied.
Accordingly, it is
ORDERED, that Plaintiffs second, fourth, fifth, sixth, eleventh, and thirteenth causes of action are dismissed.
Any other and/or further relief requested and not specifically addressed is denied.
This constitutes the Order of the Court.