Opinion
611475-17
10-02-2020
Carmine Dell AQUILA, Plaintiff, v. Thomas RUBIO, Craig Fina, Theresa Rubio, and the Estate of Joseph Oscar Rubio, Defendants, Smithtown Nissan, Inc., Nominal Defendant.
WESTERMAN BALL EDERER MILLER & SHARFSTEIN, LLP, Attorneys for Plaintiff, 1201 RXR Plaza, Uniondale, New York 11556 SIMMONS JANNACE DELUCA LLP, Attorneys for Defendant Craig Fina, 43 Corporate Drive, Hauppauge, New York 11788 STEVEN G. LEGUM, Esq., Attorney for Defendant Smithtown Nissan Inc., 170 Old Country Road, Mineola, New York 11501
WESTERMAN BALL EDERER MILLER & SHARFSTEIN, LLP, Attorneys for Plaintiff, 1201 RXR Plaza, Uniondale, New York 11556
SIMMONS JANNACE DELUCA LLP, Attorneys for Defendant Craig Fina, 43 Corporate Drive, Hauppauge, New York 11788
STEVEN G. LEGUM, Esq., Attorney for Defendant Smithtown Nissan Inc., 170 Old Country Road, Mineola, New York 11501
Elizabeth H. Emerson, J.
Upon the following papers read on this motion and cross-motion for summary judgment ; Notice of Motion and supporting papers 65-84; Notice of Cross Motion and supporting papers 85-114; Answering Affidavits and supporting papers 117-119; Replying Affidavits and supporting papers 120-122; it is,
ORDERED that the motion by the defendant Craig Fina for summary judgment is granted to the extent of dismissing the complaint insofar as it seeks declaratory relief against him; and it is further
ORDERED that the cross motion by the plaintiff for summary judgment is granted to the extent of dismissing Craig Fina's first counterclaim for declaratory relief; and it is further
ORDERED that the motion and the cross motion are otherwise denied; and it is further
ORDERED that, to the extent that is has not already done so, the law firm of Westerman Ball Ederer Miller & Sharfstein, LLP is directed to release Oscar Rubio's shares in Smithtown Nissan, Inc., to the plaintiff within 30 days after service upon it of a copy of this order with notice of entry.
Before his death, Joseph Oscar Rubio ("Oscar") had a 75% ownership interest in the defendant Smithtown Nissan, Inc. ("Smithtown Nissan," "the Dealership," or "the Corporation"), which sold and serviced new Nissan motor vehicles pursuant to a franchise agreement. Smithtown Nissan had a line of credit with Nissan America Motor Acceptance Corporation ("NMAC") for the financing of its inventory. NMAC advanced funds to Smithtown Nissan, which was required to pay NMAC back after the cars were sold and delivered to customers. On or about July 6, 2012, NMAC inspected Smithtown Nissan's inventory and determined that the Dealership owed it approximately $900,000 for cars that had already been sold and delivered. Unable to obtain traditional financing, Oscar approached the plaintiff about an emergency loan in order to avoid the Dealership being shut down or having its inventory repossessed by NMAC. The plaintiff agreed to lend Oscar $900,000, guaranteed by Smithtown Nissan, Gary Rubio (Oscar's son), and Andrew Rubio (Oscar's grandson). The loan was for a term of 30 days. As collateral for the loan, Oscar agreed to pledge, inter alia, his 75% interest in Smithtown Nissan. On July 6, 2012, the plaintiff funded the loan, and the loan documents were executed. The plaintiff was not repaid after the loan became due and he made written demands for payment.
By a letter dated October 18, 2012, the plaintiff declared the loan to be in default. On October 26, 2012, he commenced an action in this court against Oscar, Smithtown Nissan, and Oscar's son Thomas, who purportedly caused the Dealership's financial difficulties, for breach of the promissory note and guarantee, among other things ("the 2012 action"). By an order to show cause dated October 26, 2012, signed by Justice Farneti, the plaintiff obtained a temporary restraining order, which provided, in pertinent part, as follows:
Thomas Rubio owns 25 shares of Smithtown Nissan and is the Dealership's General Manager.
"Defendants and their agents, shareholders, members, officers, directors, principals, servants employees, attorneys, and any and all other persons acting on their behalf or in concert with defendants, jointly and severally, directly or indirectly, are hereby temporarily restrained and enjoined from selling, assigning, pledging, transferring, or encumbering any of the stock held by Joseph O. Rubio in defendant Smithtown Nissan, Inc."
Pursuant to an escrow agreement dated September 3, 2013, the parties agreed to allow the law firm of Westerman Ball Ederer Miller & Sharfstein, LLP ("Westerman Ball"), attorneys for the plaintiff, to hold Oscar's original stock certificates in escrow until directed to release them by court order or written agreement.
At the end of 2012, the Dealership was again in financial distress and in danger of being shut down by Nissan. Oscar and Thomas approached the defendant Craig Fina for a loan. Fina agreed to lend them $640,000 in exchange for an option to purchase stock in the Dealership, among other things. On March 4, 2013, Oscar, Thomas, Fina, and Smithtown Nissan entered into an option agreement, which provided, in pertinent part, as follows:
"2. Option to Purchase Stock. (a) Craig shall [have] the option to acquire a fifteen percent (15%) interest in the Corporation by purchasing seventeen and 65 hundredths (17.65) shares of non-voting stock of the Corporation from the authorized, but unissued shares of stock of the Corporation for a purchase price of One Million Dollars ($1,000,000)....
"(b) The option must be exercised in writing within the later of (i) 60 days after Craig's receipt of notice of the completion by stipulation or final adjudication of all litigation among the Corporation's shareholders, the Corporation, Gary Rubio and Andrew Rubio; or (ii) 60 days after Craig's receipt of notice of the final and absolute resolution of any court orders restricting or limiting the transfer of the Corporation's stock.
"(c) Until such time that Craig has purchased the stock, the Corporation shall employ Craig as its sole Sales Operations Manager pursuant to the terms of the Employment Agreement executed simultaneously herewith.
"(d) In the event the option is exercised, the purchase price shall be paid as follows: (i) the Loan shall be deemed satisfied and the proceeds recast as consideration paid to the Corporation for stock; (ii) the balance of the purchase priced shall be paid in full within 30 days of the exercise date...."
On March 5, 2013, Fina wired $640,000 to Smithtown Nissan's account at People's United Bank.
On January 29, 2014, the plaintiff entered into a settlement agreement with Oscar, Gary, and Andrew. Oscar and Gary acknowledged that the plaintiff was owed the compromised sum of $1.875 million, and Oscar agreed to transfer his entire ownership interest in Smithtown Nissan (2.25 voting shares and 72.25 non-voting shares) to the plaintiff. The plaintiff, for his part, agreed to withdraw his claims against Oscar; not to pursue any other claims against Oscar, Gary, and Andrew; and to give Andrew an option to repurchase two-thirds of Oscar's stock for $1.875 million which, if exercised, would give Andrew a majority interest in the Dealership. Oscar died shortly thereafter on February 24, 2014. By an order of this court dated March 7, 2014, the 2012 action was stayed pending the appointment and substitution of a fiduciary. Thomas was appointed as the temporary administrator of Oscar's estate. Pursuant to a so-ordered stipulation dated April 13, 2015, Thomas was substituted for Oscar as a defendant in the 2012 action. The plaintiff then moved in that action for an order enforcing the settlement agreement, vacating the temporary retraining order, directing Westerman Ball to release Oscar's stock in Smithtown Nissan to him, and discontinuing all claims and counterclaims between the plaintiff and Oscar's estate. The defendants Smithtown Nissan and Thomas, as the administrator of Oscar's estate, cross moved for summary judgment dismissing the complaint insofar as it was asserted against them.
The plaintiff made additional loans to Smithtown Nissan and the Rubios in August and September 2012 on the same terms and conditions as the original loan to Oscar.
They also moved for an order disqualifying Westerman Ball from acting as attorneys for the plaintiff, which was denied as academic.
By an order of this court dated May 2, 2016, the plaintiff's motion was granted in part and denied in part, and the cross motion was denied:
"Given the strong public policy in favor of enforcing settlements and the cross-moving defendants' failure to establish sufficient cause to invalidate the settlement agreement on the basis of forgery, lack of capacity, undue influence, unconscionability, or usury, the court finds that the settlement agreement is enforceable. Accordingly, the branches of the plaintiff's motion which are for an order enforcing the settlement agreement and discontinuing all claims and counterclaims between the plaintiff and Thomas Rubio, as the administrator of Oscar's estate, are granted.
"The cross-moving defendants contend that the settlement agreement should not be enforced because it is subject to prior agreements transferring some of Oscar's stock to Thomas and giving third-party Craig Fina an option to purchase 15% of Smithtown Nissan's stock. The court finds that the competing claims to Oscar's shares by Thomas Rubio and Craig Fina do not affect the enforceability of the settlement agreement.
The court notes, with the benefit of hindsight, that Fina was not making a claim to Oscar's shares.
Until those claims are resolved, however, the court declines to release any of Oscar's shares to the plaintiff. Accordingly, the branches of the plaintiff's motion which are for an order vacating the temporary retraining order and directing Westerman Ball to release Oscar's stock in Smithtown Nissan to the plaintiff are denied as premature.
"The court has already denied the branch of the cross motion which is for summary judgment dismissing the complaint insofar as it is asserted against Thomas, as the administrator of Oscar's estate.
The court found that Thomas, as the administrator of Oscar's estate, was actually seeking to set aside the stipulation of settlement, which required a plenary action.
The branch of the cross motion which is for summary judgment dismissing the complaint insofar as it is asserted against Smithtown Nissan is also denied in view of the cross moving defendants' failure to establish that the loans are usurious."
Thomas, Smithtown Nissan, and the plaintiff appealed. On June 19, 2017, the plaintiff commenced this action for a judgment declaring that he owns 75% of the shares of Smithtown Nissan and directing that the shares being held in escrow be released to him. Fina counterclaimed for injunctive relief and for a judgment declaring that the March 4, 2013, option agreement did not violate the temporary restraining order and that he is the owner of 17.65 shares of Smithtown Nissan.
The appeal in the 2012 action was decided by a decision and order of the Second Department dated April 10, 2019:
"Settlement agreements are judicially favored and, absent a showing of fraud, overreaching, mistake, or duress, should not be disturbed by a court (see Hymowitz v. Hymowitz , 119 AD3d 736, 740 [2014] ). Here, the moving defendants failed to demonstrate a valid ground for vacating the settlement agreement (see Daniel D. Cole & Co. v. 630 Corp. , 150 AD2d 328, 330 [1989] ). Additionally, we agree with the Supreme Court's determination that the interest charged on the notes was not usurious (see General Obligations Law § 5-501 ; Penal Law § 190.40 ; Lloyd Capital Corp. v. Pat Henchar, Inc. , 80 NY2d 124 [1992] ). Accordingly, we agree with the denial of that branch of the moving defendants' cross motion which was, in effect, to vacate the settlement agreement and for summary judgment dismissing the complaint insofar as asserted against them.
"Since the moving defendants failed to demonstrate a valid ground for vacating the settlement agreement, the plaintiff is entitled to the subject shares. Contrary to the moving defendants' contention, they failed to demonstrate that any other individual had any potential interest in the subject shares that would interfere with the plaintiff's right to them. Accordingly, the Supreme Court should have granted those branches of the plaintiff's motion which were to vacate the temporary restraining order dated October 26, 2012, and, thereupon, to direct the release of the subject shares to him."
Thus, the Second Department reversed so much of the court's May 2, 2016, order as denied the branches of the plaintiff's motion which were for an order vacating the temporary retraining order and directing Westerman Ball to release Oscar's stock in Smithtown Nissan to the plaintiff.
By a letter dated June 7, 2019, Fina's counsel, Stacey Ramis Nigro, advised Smithtown Nissan and Thomas that Fina was exercising his option to purchase stock pursuant to paragraph 2 of the option agreement. On July, 3, 2019, Nigro sent a letter to Larry Biblo, Esq., CPA, advising him that Fina had exercised the option and had provided her office with funds in the amount of $360,000, representing the balance of the stock purchase price. She also advised Biblo that the funds would be held in her firm's attorney escrow account and directed him to continue to retain and preserve Fina's 17.65 shares of stock in the Corporation "pending a final and non-appealable court determination of all litigation/arbitration proceedings with respect to any disputes involving the validity of Mr. Fina's option to purchase stock in Smithtown Nissan, Inc."
It is unclear what Biblo's role is in this litigation.
On January 22, 2020, Biblo sent a letter to Thomas and the plaintiff on Fina's behalf. Biblo advised them that, if they did not meet certain conditions within 10 days of the date of the letter, Fina would rescind his exercise of the option to purchase Smithtown Nissan stock, call his loan to Smithtown Nissan due, and demand payment in full with interest. In a letter dated February 17, 2020, the plaintiff's counsel responded as follows:
"Your January 22 letter indicates that if the conditions stated in numbered paragraphs 1 through 3 of your letter are not complied with and/or confirmed in writing within 10 days, Mr. Fina has then immediately and automatically rescinded his exercise of any purported options to purchase any stock in Smithtown Nissan, Inc. (the "Dealership"). As I am sure you are aware, and Mr. Fina's litigation counsel, Stacey Ramis Nigro, Esq., is aware based upon Mr. Dell Aquila's memorialized positions in the pending litigation entitled Dell Aquila v. Thomas Rubio et. al. , Suffolk County Supreme Court Index No. 611475/2017, Mr. Dell Aquila contests and does not recognize any purported option of Mr. Fina. Given that the 10 day period stated in your letter has lapsed, it appears that Mr. Fina has in fact rescinded his purported exercise to purchase any stock in the Dealership. I ask that you confirm in writing that Mr. Fina has rescinded any purported exercise to stock of the Dealership."
The plaintiff recognition or non-recognition of Fina's option has no bearing on the option's validity or Fina's exercise thereof. As discussed in more detail above, the plaintiff has no standing to "contest" the option. Accordingly, he has no standing to demand that Fina rescind his purported exercise of the option.
Fina did not respond. He now moves for summary judgment dismissing the complaint in this action insofar as it is asserted against him and for summary judgment on his first counterclaim for a judgment declaring that the option agreement did not violate the temporary restraining order and that he is the owner of 17.65 shares of Smithtown Nissan. The plaintiff opposes Fina's motion and cross moves for summary judgment dismissing Fina's counterclaims and for summary judgment on his cause of action for a judgment declaring that he owns 75% of the shares of Smithtown Nissan and directing that the shares being held in escrow be released to him.
The plaintiff contends that the option agreement is unenforceable because it violated the TRO. Under New York law, the terms of a contract may be enforced only by contracting parties or intended third-party beneficiaries of the contract ( Rajamin v. Deutsche Bank Nat. Trust. Co. , 757 F3d 79, 86 [2nd Cir] ). A stranger may not assert the rights of those who do not wish to assert them (Id. ). The plaintiff is neither a party to the option agreement nor a third-party beneficiary thereof. He, therefore, has no standing to contest the enforceability of that agreement. In any event, the option agreement gave Fina an option to acquire 17.65 shares of non-voting stock from the authorized, but unissued shares of stock of the Corporation. Authorized, but unissued shares are new shares, not the shares that Oscar transferred to the plaintiff. The TRO enjoined the transfer of Oscar's shares only. It did not enjoin the transfer of any other shares. Moreover, execution of the option agreement, without more, did not transfer any shares to Fina. The option agreement merely gave Fina the right to acquire 17.65 shares of Smithtown Nissan stock upon his exercise of the option. Fina did not attempt to exercise the option until after the Second Department handed down its decision and order dated April 10, 2019. Accordingly, the court finds that the record does not support the plaintiff's contention that the option agreement violated the TRO. However, the court makes no determination as to whether the option agreement is valid and enforceable and whether Fina properly exercised the option. Those issues should be resolved in arbitration (see , infra ).
The plaintiff also contends that the issuance of new shares dilutes the value of his shares in Smithtown Nissan. While that may be so, the plaintiff has not provided the court with any evidence, such as a contractual provision in the settlement agreement or some other agreement, that would establish his entitlement to protection from dilution of his ownership interest in the Corporation. Even if the plaintiff had such protection, his remedy would be against whomever may have granted him that protection.
Fina contends that he needs declaratory relief because the plaintiff refuses to recognize the option agreement, his exercise thereof, his ownership interest in Smithtown Nissan, and the Dealership's contractual obligation to him. Fina contends that he has fully performed under the option agreement and that he is, therefore, entitled to his shares.
Assuming (without finding) that the option was properly exercised by Fina, his remedy is not against the plaintiff. When the consideration for shares has been provided, the subscriber is entitled to a certificate representing his shares ( Business Corporation Law 504 [I] ; NY Jur 2d, Business Relationships § 260 ). Upon the refusal of the corporation following a demand to issue a certificate of stock to the person entitled thereto, the latter may bring an action at law against the corporation for damages or maintain a suit in equity to compel issuance of the certificate, at least when the remedy at law is inadequate (Id. ). Thus, Fina's remedy is against the Corporation, not the plaintiff. In addition, Fina may have a cause of action against the other parties to the option agreement for breach of that agreement. The plaintiff, who is not a party to the option agreement, cannot be held liable for any breach thereof ( Danica Plumbing & Heating v. Amoco Constr. Co. , 18 Misc 3d 1137[A], at *3 [and cases cited therein] ).
Fina also contends that the settlement agreement is unenforceable because it violated the TRO. The enforceability of the settlement agreement was determined in the 2012 action. Fina contends that the court's determination in that action is not binding on him because he was not a party to the 2012 action and the issue of whether the settlement agreement violated the TRO was not raised or decided therein. As Fina correctly points out, he was not a party to the settlement agreement, nor is he a third-party beneficiary thereof. As a stranger to the agreement, he has no standing to contest the enforceability of the settlement agreement (Rajamin v. Deutsche Bank Nat. Trust. Co. , supra ). In any event, the parties to the settlement agreement explicitly acknowledged the TRO and agreed that it would remain in full force and effect until the transfer of Oscar's shares in accordance with the agreement was approved by the court. The shares were placed in escrow. Fina does not contend, nor does the record reflect, that Oscar's shares were released to the plaintiff before the Second Department handed down its decision and order dated April 10, 2019. Accordingly, the court finds that the record does not support Fina's contention that the settlement agreement violated the TRO.
The Supreme Court may render a declaratory judgment having the effect of a final judgment as to the rights and other legal relations of the parties to a justiciable controversy whether or not further relief is or could be claimed ( CPLR 3001 ). A declaratory judgment action requires an actual controversy between genuine disputants with a stake in the outcome and may not be used as a vehicle for an advisory opinion (see Long Island Lighting Co. v. Allianz Underwriters Ins. Co. , 35 AD3d 253, citing Siegel, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR C3001:3). It should not be entertained when there is no necessity for doing so ( Holtzman v. Supreme Court of the State of New York , 152 AD2d 724, 725 ). No declaratory relief is necessary when conventional forms of remedy are available ( Bartley v. Walentas , 78 AD2d 310, 312 ).
The court finds that there is no justiciable controversy between the plaintiff and Fina. Neither one has standing to contest the enforceability of the other's agreement with the Rubios. In any event, the enforceability of the settlement agreement has already been determined by this court and affirmed by the Second Department. Moreover, Fina has conventional remedies against Smithtown Nissan, and perhaps the other parties to the option agreement, for damages and/or to compel the issuance of stock certificates. Thus, the plaintiff's request for declaratory relief is academic, and Fina's request for declaratory relief is unnecessary.
In addition to declaratory relief, the plaintiff seeks an order directing that Oscar's shares being held in escrow be released to him. In its decision and order dated April 10, 2019, the Second Department found that this court should have granted the branch of the plaintiff's motion which was to direct the release of Oscar's shares to him. The record does not reflect whether or not Oscar's shares have already been released to the plaintiff. To the extent that they have not, the court grants so much of the plaintiff's motion as seeks summary judgment on its request for an order directing the release of Oscar's shares. Accordingly, Westerman Ball is directed to release Oscar's shares in Smithtown Nissan to the plaintiff within 30 days after service upon it of a copy of this order with notice of entry.
Finally, the court notes that the option agreement contains an arbitration clause, which provides that any disputes arising under, out of, or in relation thereto shall be submitted to arbitration. The court's review of its prior orders in the 2012 action reveals that, in September 2013, Fina commenced an arbitration proceeding to determine, inter alia, the validity of the option agreement. The court is not aware of the resolution of that arbitration, if any. Any additional disputes between the parties to the option agreement should be resolved in arbitration. In the absence of a justiciable controversy between the plaintiff and Fina, Fina's motion for summary judgment is granted to the extent of dismissing the complaint insofar as it is seeks declaratory relief against him, and the plaintiff's cross motion for summary judgment is granted to the extent of dismissing Fina's first counterclaim.