Opinion
INDEX NO. 656099/2017
02-13-2020
JEFFREY COHEN, Plaintiff, v. INWINDOW OUTDOOR, LLC, STEVEN BIRNHAK Defendant.
NYSCEF DOC. NO. 105 MOTION DATE __________ MOTION SEQ. NO. 002
DECISION + ORDER ON MOTION
SALIANN SCARPULLA, J.:
In this action, inter alia, to recover damages for breach of contract, defendants Inwindow Outdoor, LLC ("Inwindow") and Steven Birnhak ("Birnhak") move to dismiss the second amended complaint.
In 1998, Birnhak formed Inwindow, an advertising agency. Plaintiff Jeffrey Cohen ("Cohen") was allegedly employed by Inwindow as Director of Business Development beginning in April 2006. In 2010, Cohen became a 49% member of Inwindow, and Birnhak was 51% member. Pursuant to the terms of his employment agreement, Cohen was entitled to receive a "guaranteed payment," at the intervals that "the company pays its employees payroll," which would not be less than "98% of what [] Birnhak received annually as a guaranteed payment."
Inwindow hired Anthony Diprizio ("Diprizio") to develop software to address technical problems arising with advertising signage. Diprizio developed Signclops software. According to Cohen, Birnhak began to align himself solely with Diprizio and prevented Cohen from having any involvement with Signclops. Cohen allegedly became aware that a large tech company expressed interest in purchasing Signclops and Cohen was concerned that he would be excluded. Soon thereafter, Birnhak told Cohen that he considered Signclops a separate business that did not involve Cohen, and that he "wanted to move on with Signclops without him." Cohen then threatened legal action and Birnhak agreed to negotiate a new contract for joint ownership of Signclops. Subsequently, in October 2011, Birnhak allegedly called Cohen to tell him that his employment was being terminated for cause. On October 30, 2011, Cohen received an employment termination for cause letter.
Cohen commenced this action. According to the allegations of his second amended complaint, Cohen never received his "guaranteed payment" and has not received any distribution from Inwindow since his termination. Rather, Cohen has only received "phantom income from which [he] is saddled with an ongoing tax liability and a capital account in excess of $300,000."
Cohen first asserted a declaratory judgment cause of action against Inwindow alleging that, pursuant to Section 1102 of the New York Limited Liability Company Law and the terms of the Inwindow Operating Agreement, he was entitled to review the company's profit and loss statements, balance sheets, accounts receivable and accounts payable statements and payroll statements dating back to 2011.
He next asserted a cause of action for breach of contract against Birnhak, alleging that Birnhak breached his employment agreement by failing to pay him his "guaranteed payment." In the third cause of action for breach of the covenant of good faith and fair dealing against Birnhak, he alleged that Birnhak breached the covenant by failing to pay him his "guaranteed payment."
Last, Cohen asserted a derivative cause of action on behalf of Inwindow for breach of fiduciary duty. He maintained that Birnhak:
"failed to perform the duties imposed upon him as Manager of the Company because he failed to fulfill the duties and obligations placed upon him by law, and did not administer the Company's affairs in a skillful, careful, and diligent manner, and did not honestly act with respect to the Company's affairs, but on the contrary, took unto himself the Company's assets and opportunities, and acted solely in his own interests and not in the interest of the Company and its other member; Defendant Birnhak used Company's resources and assets to invest in Signclops with the intent to participate personally in Signclops without Company's participation;
Defendant Birnhak has also withheld Guaranteed Payments and Distributions to Plaintiff for his personal use and benefit, all in violation of his respective fiduciary duties and obligations, and to the damage Company."
Inwindow and Birnhak now move to dismiss the second amended complaint. They first argue that the first cause of action for books and records must be dismissed because it is vague and too broad. They next argue that the breach of contract cause of action must be dismissed because Birnhak is not a party to the employment agreement and the cause of action is time barred. For the same reasons, they argue, the cause of action for breach of the covenant of good faith and fair dealing should be dismissed. In addition, that claim is duplicative of the breach of contract claim and fails to allege any facts to support the argument that Birnhak did not act in good faith.
Inwindow and Birnhak argue that the cause of action alleging breach of fiduciary duty must be dismissed because it is time barred, it fails to provide a factual basis for any alleged misconduct, fails to set forth any damages, and is duplicative of the breach of contract cause of action. Finally, they argue that the demand for attorneys' fees must be dismissed because the plaintiff points to no provision in the subject agreement or statutory provision or rule entitling him to recover attorneys' fees.
Defendants also argued that service of process was improper in that it was executed upon a person not authorized to accept service for the defendants, defendants did not receive the pleadings in the mail, and the proof of service was not timely filed. However, at oral argument on the motion, counsel for defendants withdrew defendants' arguments regarding service of process. --------
In opposition, Cohen first argues that he is entitled to inspection of financial documents that are necessary to the litigation. Second, Cohen contends that the breach of contract and breach of covenant of good faith and fair dealing causes of action are not barred by the statute of limitations because the first amended complaint was filed exactly six years after Cohen's employment termination. Further, these claims insofar as asserted against Birnhak must not be dismissed because the corporate veil can be pierced. Specifically, Cohen alleged that Birnhak, as majority partner, exercised complete control over Inwindow and breached the contract and acted in bad faith by failing to provide Cohen with his "guaranteed payment" and other distributions.
With regard to the fourth cause of action asserted derivatively on behalf of Inwindow, Cohen alleges that he clearly set forth a factual basis for the claim. Specifically, he maintains that Birnhak (1) used Inwindow's resources and assets to invest in Signclops, but intended and attempted to take the Signclops corporate opportunity for himself personally; and (2) failed to pay Cohen the "guaranteed payment" owed to him at the time his employment was terminated. Discussion
NY LLC Section 1102(b) provides, "[a]ny member may, subject to reasonable standards as may be set forth in, or pursuant to, the operating agreement, inspect and copy at his or her own expense, for any purpose reasonably related to the member's interest as a member, the records referred to in subdivision (a) of this section, any financial statements maintained by the limited liability company for the three most recent fiscal years and other information regarding the affairs of the limited liability company as is just and reasonable." Here, Inwindow produced tax returns, general ledgers and financial records. According to defendants, Inwindow does not prepare profit and loss statements and there are no other accounting records. Cohen has not set forth any basis to receive additional documents than those to which he is entitled under the Limited Liability law and has received. Therefore, the first cause of action is dismissed.
Further, Cohen's breach of contract and breach of the covenant of good faith and fair dealing causes of action are dismissed. First and foremost, the breach of contract cause of action is asserted only against Birnhak, who was not a party to the subject contract. See Balk v. 125 W. 92nd St. Corp., 24 A.D.3d 193 (1st Dept. 2005). And Cohen's vague and factually unsupported allegations that he may pierce the corporate veil to reach Birnhak individually are insufficient to provide support for this cause of action. There are no specific allegations in the second amended complaint that Birnhak abused the corporate form in an attempt to harm Cohen. Further, pursuant to paragraph 5(f) of his employment agreement, Cohen would not be entitled to his guaranteed payment upon termination for cause.
The cause of action for breach of the covenant of good faith and fair dealing is entirely duplicative of the breach of contract cause of action, and, in any event, fails to allege any facts to support a claim of bad faith or unfair dealing. See Logan Advisors, LLC v. Patriarch Partners, LLC, 63 A.D.3d 440 (1st Dept. 2009).
Finally, the breach of fiduciary duty cause of action is also dismissed. The original complaint was filed in September 2017, only including a cause of action seeking access to books and records. The first amended complaint was filed on October 30, 2017 and the second amended complaint was filed on September 11, 2018. In the breach of fiduciary duty cause of action asserted in the second amended complaint, Cohen's allegations that Birnhak "used Company's resources and assets to invest in Signclops with the intent to participate personally in Signclops without Company's participation" are impermissibly vague and conclusory. See Berardi v. Berardi, 108 A.D.3d 406 (1st Dept. 2013). In any event, the purported misconduct only could have occurred sometime prior to the October 30, 2011 termination of Cohen's employment and therefore, this cause of action is barred by the Statute of Limitations.
In accordance with the foregoing, it is hereby
ORDERED that defendants Inwindow Outdoor, LLC and Steven Birnhak's motion to dismiss the second amended complaint is granted and the second amended complaint is dismissed; and it is further
ORDERED that the Clerk of the Court is directed to enter judgment accordingly.
This constitutes the decision and order of the court. 2/13/2020
DATE
/s/ _________
SALIANN SCARPULLA, J.S.C.