Opinion
6913-07.
Decided June 5, 2008.
Law Offices of Timothy J. O'Connor, Attorneys for Plaintiff, New York.
Wilson, Elser, Moskowitz, Edelman Dicker, LLP, Attorneys for Defendants, New York.
In this commercial action, defendants move pursuant to CPLR 3211 to dismiss the first amended complaint. Plaintiff cross-moves for permission to serve a second amended complaint. For the reasons that follow, defendants' motion is granted in all respects and plaintiff's cross-motion is denied.
The basic facts of this case are not complicated. Plaintiff is board chair and majority shareholder of a telecommunications company called Tech Valley Communications, Inc. ("TVC"). In early 2001, plaintiff tendered one hundred thousand dollars ($100,000.00) to his friends, defendants Daniel J. Yamin, Jr. and Donald J. Walsh, to form a new venture named Combined Solutions, Inc. ("CSI"). CSI was to provide consulting services to telecommunications and related companies. Plaintiff's payment is described by him in the complaint as an "investment," though it is also described elsewhere in his papers as a loan.
Unless otherwise stated, the facts recited are drawn from plaintiff's first amended complaint which, for purposes of this motion, the Court must accept as true ( Nonnon v City of New York , 9 NY3d 825 , 827 [2007]).
In addition to the direct monetary support for CSI, plaintiff (through LAD Industries, LLC, another company he controlled) provided Yamin and Walsh with discounted office space and telephone service to assist in the start-up of the new company. What plaintiff was to receive in return for his investment, however, is unclear. Though plaintiff had apparently put up six figures of "seed money," no documents exist to show whether this was intended to be repaid as a loan or whether it was meant to purchase an interest in the company. No shares of CSI stock were ever issued to plaintiff, nor was there a note or other evidence of indebtedness ever executed. Plaintiff was apparently named a director of CSI, though, and did attend several meetings of its board. The first of these occurred on April 30, 2001.
One of the first matters handled by CSI was the preparation of a business plan for TVC. This plan was related to TVC's operation as a Competitive Local Exchange Carrier ("CLEC"), a business that purchased telephone service from major carriers and resold it to end users.
The principals of CSI realized that it would be advantageous to their consulting business for them to form their own CLEC. This would, according to plaintiff, allow them access to certain useful information from major carriers. To this end, Yamin, with the approval of plaintiff, formed a new company, CSTC, LLC. As plaintiff was already running TVC, itself a successful CLEC, it was his understanding that this new venture was not intended to be a competitor in the telecommunications market; rather, its existence was to be limited to being a conduit of information useful to CSI's consulting operations.
CSTC, LLC filed its application with the Public Service Commission to become a CLEC on July 12, 2001. The application was granted on August 29, 2001. Shortly thereafter, apparently without plaintiff's knowledge, Yamin and Walsh began neglecting the consulting business and instead focused their energies on the resale of telephone services to consumers through the CLEC. By the end of 2001, they apparently severed all ties with plaintiff and vacated the office space obtained with plaintiff's assistance. No later than January 11, 2002 plaintiff became aware that his friends had gone off to become his competitors. On that date plaintiff was quoted in a business journal as lamenting, "I didn't loan them money to compete against me."
In August of 2002, CSI was formally dissolved, apparently without plaintiff's knowledge. In October of 2002, Yamin and Walsh filed a Certificate of Amendment to change the name of CSTC, LLC to CornerStone Telephone Company, LLC ("CornerStone").
Five years later, in 2007, plaintiff was seeking to negotiate a merger between TVC and CornerStone. In the course of his investigation into CornerStone, he apparently discovered for the first time that it was in fact operating under the PSC license originally issued to CSTC. This litigation followed.
Plaintiff's Amended Verified Complaint consumes one hundred fifty-five (155) pages to allege twenty-seven (27) causes of action in three hundred eighty-nine (389) paragraphs. While it flagrantly violates CPLR 3014's mandate that pleadings "shall consist of plain and concise statements," dismissing the complaint sua sponte with leave to replead would ultimately work a disservice to defendants, whose counsel have laboriously sifted through the verbiage to dissect and analyze the multitude of arguments and theories, many of which are internally inconsistent and mutually contradictory. It is therefore more appropriate to determine whether there are sufficient facts pleaded which give rise to one or more causes of action and then to determine whether any such cause of action is subject to dismissal on any of the grounds raised by defendants.
Distilled to their essence, plaintiff's factual allegations claim that his investment of money and other consideration (such as the reduced rent on office space and the telephone system, both provided by LAD Industries) entitles him to an ownership interest in CSI. Plaintiff alleges that there was an agreement to this effect between himself and defendants Yamin and Walsh, and that this agreement is enforceable as a contract. Plaintiff further alleges that various acts on the part of Yamin and Walsh constitute breaches of that contract. In the alternative, plaintiff alleges that he is entitled to recover damages from defendants on a number of other theories. Plaintiff also includes an assortment of derivative claims, although his complaint points out that these are pled "for completeness' sake," as he individually, and not any corporate entity, has been the only party harmed by defendants' actions.
For clarity, the Court shall address the causes of action pled in the complaint under headings intended to identify common themes:
The Contractual Claims (Causes of Action 2 and 3 )
Plaintiff's second cause of action alleges breach of contract. Plaintiff contends that Yamin and Walsh had agreed that, in consideration for his investment of money, "infrastructure", "sweat equity" and other contributions, he would receive an ownership interest in CSI. He also claims the existence of an agreement whereby he would share a "proportionate" and "pro rata" interest in CSTC and CornerStone. He further claims that defendants agreed to account for his investment in the various ventures.
Plaintiff claims that this contract was breached when defendants dissolved CSI without rendering an accounting to him. Plaintiff goes on to allege that Yamin and Walsh also breached their contract with him by having "diverted" his pro rata sharehold interest to themselves. Plaintiff seeks damages in excess of three million dollars ($3,000,000.00).
Defendants counter with the argument that plaintiff has failed to allege the existence of an understanding definite enough to be considered a contract binding between the parties. Moreover, they point out that any purported breach of that agreement occurred over six (6) years prior to the commencement of this action. For these two reasons, they urge dismissal.
First, it is a basic axiom of contract law that the material terms of an agreement must be definite in order for that agreement to be legally enforceable as a contract ( Joseph Martin, Jr., Delicatessen. v Schumacher, 52 NY2d 105). In a business transaction such as this, where the alleged bargain involves the exchange of money for an ownership interest in a corporate entity, the size of the share ostensibly being purchased must be considered a material element of the deal ( cf. Matter of Express Indus. Term. Corp. v New York State Dept. of Transp., 93 NY2d 584). Aside from vague terms such as "proportionate" and "pro rata", however, plaintiff does not allege what share of the business was understood to belong to him in exchange for his claimed investment. If plaintiff was purchasing a "proportionate" share of the company, did the parties have an understanding at the time they struck their bargain of the size of plaintiff's "portion"? Was plaintiff's "pro rata" interest in CSI to have been based on the number of investors, the relative value of their respective contributions to the venture, or some other standard? Nothing in the voluminous pleadings sheds any light on these central issues.
Plaintiff's claim, peppered throughout his papers yet unstated in his cause of action for breach of contract, that he is entitled to "14.66%" of CornerStone is inapplicable to the analysis of the question of what did the parties intend at the time of their alleged agreement. Plaintiff himself concedes that the percentage he now espouses came, not from discussions held with Yamin and Walsh at the time they accepted his investment in CSI, but from extrapolation from the percentage of CornerStone allegedly purchased by subsequent investors for one hundred thousand dollars ($100,000.00) each. As this fraction is not alleged to have been in the minds of the parties at the time they made their deal, it cannot be retroactively utilized to fill a material gap in the parties' alleged understanding.
In the absence of a clear definition of what share of the business was intended to belong to plaintiff, there can be no contract. To hold otherwise would be tantamount to empowering the Court to dictate to the parties the terms of that to which they had never agreed. This would, of course, be contrary to established principles of contract law ( see Martin, supra, at 109). Accordingly, plaintiff has failed to allege the existence of a contract and thus the cause of action for its breach must fail.
Moreover, even if an agreement to tender a definite number of shares of CSI stock to plaintiff had been made, this cause of action would still be subject to dismissal. A cause of action for breach of contract for the sale of shares of stock accrues at the time payment is to be tendered ( Klein v Conte, 212 AD2d 363 [1st Dept 1995]). Here, plaintiff's final payment was tendered more than six years before the date on which this action was commenced. Any claim of ownership of the corporation would therefore be time-barred (CPLR 213).
Finally, plaintiff's contention that Yamin and Walsh breached their contract with him by having "diverted" assets of CSI for their own personal gain at the time of its dissolution also constitutes a time-barred claim. Though styled a breach of contract, the alleged theft of plaintiff's property by Yamin and Walsh in fact states a cause of action for conversion ( see e.g. Republic of Haiti v Duvalier, 211 AD2d 379, 384 [1st Dept 1995]). This would be governed by a three-year statute of limitations under CPLR 214 (4). Therefore, inasmuch as CSI was dissolved in October of 2002, this claim is also time-barred.
Plaintiff's third cause of action alleges a breach of the implied covenant of good faith and fair dealing. Such a claim requires a valid contract between the parties ( Schorr v Guardian Life Ins. Co. of Am. , 44 AD3d 319 [1st Dept 2007], citing American-European Art Assoc. v Trend Galleries, Inc., 227 AD2d 170 [1st Dept 1996]). As plaintiff has failed to allege sufficient facts to support the claim of a valid contract, this cause of action is dismissed.
The Quasi-Contractual Claims (Causes of Action 4, 5, 7 and 8 )
Plaintiff's fourth cause of action alleges unjust enrichment. In this cause of action, plaintiff advances what appear to be two distinct theories upon which he is entitled to restitution. He first claims that, since defendants were enriched unjustly by their having taken his investments in CSI for their own use, they must disgorge the value of these investments. Additionally, plaintiff claims that defendants have been continually unjustly enriched by their having acquired the share of the profits of CSI, CSTC and CornerStone that were to have flowed to plaintiff in accord with their initial deal. On the first of these theories, the cause of action is time-barred; on the second, no cause of action is stated.
A cause of action for unjust enrichment accrues "upon the occurrence of the wrongful act giving rise to the duty of restitution" ( Elliott v Qwest Communications, Corp. , 25 AD3d 897 , 898 [3d Dept 2006] quoting Congregation Yetev Lev D'Satmar v 26 Adar N. B. Corp., 192 AD2d 501, 503 [2d Dept 1993] [internal quotation marks omitted]). It is governed by a six-year statute of limitations ( id.; CPLR 213). In this case, the cause of action accrued at the time plaintiff tendered his investment in CSI to Yamin and Walsh without receiving shares of stock in the company. Arguably, the date of accrual could be extended as far as June 27, 2001, when Yamin filed the Articles of Organization of CSTC, or even to July 12, 2001, the date on which Yamin filed the application with the PSC for CSTC to operate as a CLEC in competition with TVC. The date of accrual cannot be extended, however, as far as August 29, 2001, the date of the PSC's grant of the license to CSTC, as it cannot be argued that the PSC committed a "wrongful act" by having granted CSTC authority to operate as a CLEC. As this case was commenced on August 28, 2007, more than six years after the latest possible date upon which a duty could have arisen for Yamin and Walsh to restore plaintiff's investment, this cause of action falls outside the applicable statute of limitations.
Plaintiff's alternate theory, that the duty of restitution arose and continues to arise with each dollar in profit retained by defendants, fails for a different reason. Plaintiff would only be entitled to share in the profits of CSI, CSTC or CornerStone if he were an owner of one or more of these entities. As demonstrated, supra, however, plaintiff has failed to allege sufficient facts to establish the existence of a valid agreement under which he might have obtained such an ownership interest. Without an ownership interest, plaintiff has no entitlement to a share of the profits. Inferentially, defendants' refusal to hand over to plaintiff any portion of those profits cannot be construed as a "wrongful act giving rise to the duty of restitution."
Plaintiff's fifth cause of action is for money had and received. This quasi-contractual cause of action accrues at the time when money is paid out under a mistake of law or fact ( see e.g. Jenad, Inc. v Village of Scarsdale, 35 Misc 2d 450, 451-452 [Sup Ct Westchester County 1962], citing American Woolen Co. of NY v Samuelsohn, 226 NY 61 and Cohen v City Co. of NY, 283 NY 112). It is governed by a six-year statute of limitations ( County of Niagara v Town of Royalton, ___ AD3d ___, 849 NYS2d 822 {48 AD3d 1072} [4th Dept 2008], citing Board of Educ. of Cold Spring Harbor Cent. School Dist. v Rettaliata, 78 NY2d 128, 138). Plaintiff's money was paid out by May 11, 2001, more than six years before the date of commencement of this action. As a result, this cause of action is also time-barred.
Plaintiff's seventh cause of action is for "quasi-contract." Whether this is an independent cause of action or, as urged by defendants, merely a "category" of action, ( cf. Gibraltar Mgt. Co. v Grand Entrance Gates, Ltd. , 46 AD3d 747 [2d Dept 2007]), both the factual allegations of the complaint as well as the legal theory of recovery essentially mirror those of the causes of action sounding in unjust enrichment and money had and received. Inasmuch as those causes of action are time-barred, this is as well.
Plaintiff's eighth cause of action seeks the quasi-contractual remedy of the imposition of a constructive trust. The allegations of this cause of action are particularly inscrutable (paragraphs 227 through 230, for example, are comprised of individual sentences that run on for twenty-five [25], twenty-seven [27], twenty-one [21] and thirty [30] lines of text respectively). What plaintiff seems to be alleging is that he and defendants shared a "confidential" relationship; that defendants promised him a share of their business in exchange for his investment; that they broke their promise; and that, as a result, the Court should impose a constructive trust on any and all profits earned by CSI, CSTC and CornerStone and pay at least 14.66% of those profits over to plaintiff.
First, the imposition of a constructive trust is less a cause of action than it is an equitable remedy ( cf. Consumers Union of the U.S., Inc. v State , 5 NY3d 327 , 347 n 14 [2005] [constructive trust "purportedly" a cause of action]). In either case, entitlement to such relief requires a showing of four elements: a confidential or fiduciary relationship; a promise, express or implied; a transfer in reliance on that promise; and unjust enrichment ( id., citing Banker's Sec. Life Ins. Socy. v Shakerdge, 49 NY2d 939, 940). The imposition of a constructive trust is governed by the six-year statute of limitations embodied in CPLR 213 (1) ( Taintor v Taintor, 50 AD3d 887 [2d Dept 2008]), and it accrues "upon the allegedly wrongful act giving rise to a duty of restitution" ( id., citing Soscia v Soscia , 35 AD3d 841 , 843 [2d Dept 2006]; Ta Chun Wang v Chun Wong, 163 AD2d 300, 302 [2d Dept 1990]). Thus, the analysis applicable to a constructive trust scenario is parallel to that employed in a case of unjust enrichment. Inasmuch as the cause of action for unjust enrichment, as noted, supra, is time-barred, so too would be an action for a constructive trust.
The Tort/Fraud Claims (Causes of Action 1, 11, 12, 14, 15 and 27 )
Plaintiff's first cause of action alleges breach of a fiduciary duty. He contends that, as a minority shareholder in CSI and as a member of CSTC and CornerStone, he was owed a fiduciary duty by the individual defendants, who were also shareholders and members of these entities. He further alleges that the individual defendants breached that duty by engaging in self-dealing, thereby cheating him of his monetary investment and his equity interest in the business entities. He demands money damages, a determination that he is entitled to a percentage interest in CornerStone, and an accounting.
Defendants contend that this cause of action is time-barred. They rely on authority that states that the applicable statute of limitations is three years pursuant to CPLR 214 (4) ( see e.g. Weiss v TD Waterhouse , 45 AD3d 763 [2d Dept 2007]). Such cases, however, apply only where the sole relief requested is money damages. Where equitable relief is also sought, the applicable statute of limitations is six years under CPLR 213 (1) ( Kaufman v Cohen, 307 AD2d 113, 118 [1st Dept 2003]). Here, plaintiff seeks an accounting as well as money damages. This is a request for equitable relief on this cause of action and, therefore, the longer period of limitations is applicable here.
The question then becomes one of when the alleged breach of duty occurred. "As a general proposition it is upon injury that a legal right to relief arises in a tort action and the statute of limitations begins to run" ( Ackerman v Price Waterhouse, 84 NY2d 535, 541, quoted in Guthart v Goldrick, 19 Misc 3d 861 [Sup Ct Nassau Cty 2008] [breach of fiduciary duty claim against officers and directors of bank accrues when bank damaged]). Here the first injury allegedly suffered by plaintiff was the failure of defendants Yamin and Walsh to honor their obligation to provide plaintiff with the stock shares he had purchased with his initial investment. Assuming for the purposes of this analysis that Yamin and Walsh, as owners of a controlling interest in CSI, owed a fiduciary duty to plaintiff as a minority investor, this refusal to confer upon plaintiff the benefit of his bargain in and of itself constituted an actionable wrong. This cause of action thus accrued as early as the spring of 2001.
At the latest, according to plaintiff's own line of reasoning, the application by Yamin to the PSC for permission to operate CSTC as a CLEC is the act giving rise to this cause of action. Plaintiff repeatedly alleges that he was opposed to the formation of a CLEC in the same geographic location as that being operated by TVC. Indeed, throughout the complaint plaintiff laments that the value of his investment in TVC was reduced by virtue of this conduct on the part of Yamin and Walsh, and he provides as his own exhibit to the complaint a copy of the report in which he is quoted as saying, "I didn't loan them money to compete against me."
As noted earlier, these acts all occurred more than six years prior to the commencement of this action. This claim is therefore time-barred.
Of course, it must also be noted that plaintiff's factual allegations do not make out a viable cause of action for breach of fiduciary duty. The elements of the cause of action are the existence of a fiduciary relationship, misconduct on the part of the defendant, and damages ( Kurzman v Bergstol, 40 AD3d 588, 590 [2d Dept 2007]). Plaintiff attempts to allege the existence of a fiduciary relationship based on his purported status as shareholder in CSI and member of CSTC/CornerStone. Yet apart from his oft-repeated ipse dixit that he is a "de facto and de jure" shareholder and member of these entities, plaintiff has alleged no facts that would support such a conclusion. Instead, plaintiff's own papers make it clear that he never held a single share of stock in CSI and has never been listed anywhere as a member of the LLC. Thus there are insufficient facts pled to support an inference that plaintiff had a fiduciary relationship with the individual defendants.
Plaintiff's eleventh cause of action alleges constructive fraud. The elements of this cause of action are a confidential or fiduciary relationship between the parties; a representation made by the defendant to the plaintiff; falsity of that representation; intent on the part of the defendant to induce reliance on the false representation; reliance by the plaintiff on the false representation; ignorance on the part of the plaintiff of the representation's falsity; and injury to the plaintiff ( Brown v Lockwood, 76 AD2d 721, 730-731 [2d Dept 1980]). As with any cause of action alleging fraud, particularity in pleading is required by CPLR 3016 (b).
Plaintiff fails to plead a cause of action in constructive fraud. Lacking in the complaint is any allegation that any defendant made any false representation to plaintiff. Moreover, there is no particular factual allegation that plaintiff was induced to do anything, or to refrain from doing anything, on account of any false representation by defendants. The absence of these essential elements mandates dismissal of this cause of action.
Plaintiff's fourteenth cause of action alleges fraudulent concealment. This cause of action requires proof that the defendant was under a duty to disclose information to the plaintiff; that the defendant failed to make such a disclosure; that this failure was intended to defraud or mislead the plaintiff; that the plaintiff acted as a result of this concealment; and that the plaintiff was injured ( P.T. Bank Cent. Asia, NY Branck v ABN AMRO Bank N.V., 301 AD2d 373, 376 [1st Dept 2003]). Here, there appear to be two distinct components to this particular claim. First, plaintiff contends that defendants concealed from him the fact that the PSC had granted their application for CSTC to operate as a CLEC. Second, plaintiff contends that defendants concealed from him the fact that defendants Overton, Doerr and Russell had purchased membership interests in CornerStone. Each of these components merits separate analysis.
At no point in his voluminous pleadings does plaintiff deny that he was aware that Yamin and Walsh had applied to the PSC for permission to operate CSTC as a CLEC. Indeed, he has even stated that, as a director of CSI, he had approved this action, albeit for the limited purpose of allowing the consulting business to have access to information that could only be accessed by a CLEC. Thus, plaintiff does not claim that defendants fraudulently concealed from him the application to the PSC. Rather, it is plaintiff's claim that defendants concealed the fact of the application's having been granted.
The question then becomes, how did defendants conceal from plaintiff that which is a matter of public record? Plaintiff's pleadings not only fail to answer this question, but they defeat this cause of action. Plaintiff alleges that he learned of the license to operate the CLEC by having hired an investigator to look at the PSC's public records. With the world on notice that CSTC was granted its application to operate as a CLEC, plaintiff cannot contend that this fact was concealed from him. An essential element of his cause of action is therefore lacking.
With regard to the allegation that defendants fraudulently concealed from plaintiff the purchase of membership interests in CornerStone by Overton, Doerr and Russell, other essential elements are lacking. Plaintiff has failed to allege facts from which the inference that defendants were under a duty to disclose the addition of these three members to CornerStone would flow. Moreover, plaintiff has failed to allege that he has been induced to do or to refrain from doing anything at all on account of defendants' having concealed this information from him. Again, in the absence of factual allegations to support essential elements of the cause of action, it is subject to dismissal.
Plaintiff's fifteenth cause of action alleges fraudulent misrepresentation. "To state a legally cognizable claim of fraudulent misrepresentation, the complaint must allege that the defendant made a material misrepresentation of fact; that the misrepresentation was made intentionally in order to defraud or mislead the plaintiff; that the plaintiff reasonably relied on the misrepresentation; and that the plaintiff suffered damage as a result of its reliance on the defendant's misrepresentation" ( P.T. Bank, supra, at 376). The gravamen of plaintiff's contention here is that Yamin and Walsh falsely stated, in their filings at the time of its dissolution, that CSI had no assets. Plaintiff fails to state any facts, however, that would suggest either that this information was communicated to him in order to defraud or mislead him, or that he did anything (or refrained from doing anything) in reliance on this false information. Thus, this cause of action fails for want of essential elements.
Plaintiff's twenty-seventh cause of action alleges a fraudulent conveyance in violation of Debtor and Creditor Law § 273. This cause of action requires proof that the plaintiff was a creditor of the defendant; that the defendant conveyed an asset or incurred an obligation; that this was done without fair consideration; and that this conveyance or obligation rendered the defendant insolvent ( Joslin v Lopez, 309 AD2d 837 [2d Dept 2003]). Here plaintiff contends that defendants Yamin and Walsh caused the conveyance of three assets from CSI, thereby rendering it insolvent: the PSC license to operate as a CLEC, the consulting report prepared by CSI for TVC, and "CLEC Reseller Telecommunications Company Infrastructure."
Plaintiff's own documentation, appended as exhibits to his complaint, demonstrates that the PSC issued a license to CSTC, not to CSI, to operate as a CLEC. Thus, there could be no fraudulent conveyance of any PSC license from CSI. Moreover, there is no support for the proposition that a PSC license is an asset subject to transfer from one entity to another. Accordingly, this branch of plaintiff's cause of action fails.
As to the consulting report prepared by CSI for TVC, plaintiff fails to show how this document has an intrinsic value that can be stripped by conveyance from its creator's possession. Plaintiff himself is in possession of this report; indeed, he provides a copy of it as an exhibit to his pleadings. Assuming that a copy of this report went from CSI to CSTC, plaintiff has not demonstrated how this constituted the improper transfer of an asset to defraud creditors of CSI.
With regard to "CLEC Reseller Telecommunications Company Infrastructure," plaintiff does not even attempt to explain the meaning of this phrase. Inasmuch as the burden of proof rests with the party seeking to set aside a fraudulent transfer, ( CIT Group/Commercial Servs., Inc. v 160-09 Jamaica Ave. Ltd Partnership , 25 AD3d 301 , 306 [1st Dept 2006]), plaintiff's failure to allege facts sufficient to flesh out his claim of fraudulent conveyance works to his detriment.
Finally, plaintiff has not alleged facts that would lead to the conclusion that he is or was a creditor of CSI. Indeed, he has generally taken great pains to avoid any suggestion that his "investment" in CSI was a loan as opposed to the purchase of an ownership interest. While throughout the course of his complaint plaintiff avails himself regularly of the opportunity to plead inconsistent, contradictory or hypothetical theories, he has, in large part, refrained from labeling himself as a creditor, despite his having been quoted as having made a "loan" to Yamin and Walsh. For this additional reason, then, plaintiff has failed to state a cause of action here.
Plaintiff's twelfth cause of action alleges diversion of corporate opportunity. In essence, plaintiff alleges that defendants Yamin and Walsh diverted business opportunities away from CSI and to CSTC/CornerStone in order to benefit themselves at plaintiff's expense. Plaintiff alleges that this occurred upon the dissolution of CSI "and after."
A claim for diversion of corporate opportunity is governed by the three-year statute of limitations applicable to actions alleging injury to property (CPLR 214; Powers Mercantile Corp. v Feinberg, 109 AD2d 117, 119-120 [1st Dept 1985]). CSI was dissolved in late 2002; this action was commenced in 2007. Any opportunity that might have been diverted from CSI to any other entity could only have arisen while CSI was extant. Therefore, any cause of action here would clearly be time-barred.
The Statutory Claims (Causes of Action 6, 10, 13, 18, 19, 20, 21, 22, 23, 24, 25 and 26 )
Plaintiff's sixth cause of action seeks judicial dissolution (presumably of CSI) under BCL § 1103. Plaintiff's factual allegations supporting this cause of action are, in a word, unfathomable. Corporate dissolution under this statute requires a vote of the shareholders at a meeting called for the purpose by the holders of at least 10% of the shares of the corporation ( id. [b] and [c]). Plaintiff has not alleged any facts to support his claim that he is a shareholder; that a meeting to seek dissolution of CSI was called by the holders of the requisite number of shares; that such a meeting was ever held; that a vote was taken; or that the result of that vote was a decision to petition for dissolution. As a result, this cause of action cannot stand.
Plaintiff's tenth cause of action seeks the appointment of a receiver under Article 12 of the BCL. BCL § 1202, however, limits the right to seek appointment of a receiver to judgment creditors or in furtherance of a judicial dissolution under BCL Article 11. Plaintiff is not a judgment creditor, nor, as seen in connection with his sixth cause of action, supra, will there be a judicial dissolution of the corporation. This cause of action is therefore dismissed.
Plaintiff's thirteenth cause of action seeks judicial dissolution of CSTC/CornerStone under LLC Law § 702. That statute, however, allows for judicial dissolution only "[o]n application by or for a member." As noted, supra, plaintiff has not alleged facts sufficient to support the inference that he is a member of this LLC. As a result, he lacks standing to seek its judicial dissolution.
Plaintiff's eighteenth cause of action alleges liability for false statements in the articles of organization of CSTC/CornerStone under LLC Law § 210. As a liability created by statute, it is governed by a three-year statute of limitations (CPLR 214). The most recent filing relevant to this case was the certificate of change involving the change of the name of CSTC, LLC to CornerStone Telephone Company, LLC on October 31, 2002. As this case was commenced on August 28, 2007, this cause of action is patently time-barred.
Similarly time-barred is plaintiff's nineteenth cause of action, which seeks liability for a reduction in stated capital under BCL § 520. Inasmuch as CSI was dissolved nearly five years before the commencement of this action, this claim falls outside the three-year limitations period of CPLR 214(2).
Plaintiff's twentieth cause of action seeks an Order pursuant to BCL § 624 allowing him access to the books and records of CSI. This relief is available only to a "person who shall have been a shareholder of record" of the corporation in question. Plaintiff has not alleged facts that would lead to the inference that he was ever a shareholder of record of CSI. Furthermore, BCL § 624(d) provides the specific mechanism by which inspection may be compelled. That provision mandates that the application be brought by Order to Show Cause, with a mandatory summary hearing to be held on the return date of the motion. Plaintiff has not satisfied this requirement. For these reasons, this cause of action is dismissed.
Plaintiff's twenty-first cause of action seeks liability for the misconduct of directors and officers of CSI pursuant to BCL § 720. Again, this cause of action is covered by the three-year statute of limitations governing liabilities imposed by statute (CPLR 214). For the reasons stated, supra, it is time-barred.
Plaintiff's twenty-second cause of action seeks liability against Yamin and Walsh as directors of CSI pursuant to BCL § 720. This cause of action is also covered by the three-year statute of limitations governing liabilities imposed by statute (CPLR 214). For the reasons stated, supra, it is time-barred.
Plaintiff's twenty-third cause of action seeks payment for stock shares under BCL §§ 623 and 910. As the plain language of these statutory provisions provide, such actions may only be maintained by shareholders ( cf. Matter of Cassaro (West Mead Contr. Corp.), 93 Misc 2d 1096 [Sup Ct Erie Cty 1978]). Inasmuch as plaintiff has failed to allege facts from which his status as shareholder might be inferred, he lacks standing to pursue this cause of action.
Plaintiff's twenty-fourth cause of action seeks various relief under BCL Article 11, including the appointment of a receiver for CSI, an injunction against disposal of assets of CSI and other remedies. As with the prior cause of action, these are remedies available only to shareholders. Accordingly, plaintiff lacks standing to pursue this cause of action. Moreover, as plaintiff's complaint alleges that CSI was dissolved more than five years ago, the questions of whether a receiver should be appointed or an injunction issued are clearly academic. This cause of action is therefore dismissed.
Plaintiff's twenty-fifth cause of action seeks a distribution of the assets of CSTC/CornerStone under LLC Law § 704 (a) — (c). As these statutory provisions plainly state, this relief is only available to creditors and members of an LLC at the time of its winding up. As noted earlier, plaintiff has not alleged facts sufficient to support an inference that he is or ever was a member of CSTC/CornerStone, nor has he demonstrated that he is a creditor of the LLC. Moreover, LLC Law § 704 does not appear to create an independent cause of action; rather, it sets out the order of priority of claimants to the assets of an LLC at the time of its dissolution. For these reasons, then, this cause of action is dismissed.
Plaintiff's twenty-sixth cause of action seeks payment for the interest of a dissenting member under LLC Law § 1005. As previously noted, plaintiff has not made a sufficient factual showing that he is or was a member of the LLC. He thus may not avail himself of this statutory provision.
The Miscellaneous Claims (Causes of Action 9, 16 and 17 )
Plaintiff's ninth cause of action seeks an accounting of CSI and CSTC/CornerStone, as well as restitution of his alleged investments in these entities. The claim is predicated upon a letter sent to defendants on August 27, 2007, the day before this action was commenced. In that letter, plaintiff demanded an acknowledgment of his ownership interest in CornerStone as well as an accounting for CSI, CSTC and CornerStone. Defendants' refusal to comply with this demand is given by plaintiff as the basis for this cause of action.
The right to an equitable accounting requires, as a prerequisite, a showing of a fiduciary and confidential relationship between the parties ( PVM Oil Futures v Banque Paribas, 161 AD2d 220, 221 [1st Dept 1990], citing Kaminsky v Kahn, 20 NY2d 573 [existence of option contract for purchase of shares of stock insufficient to create fiduciary relationship needed to entitle plaintiff to an accounting]). Having failed to allege sufficient facts to show that he is a shareholder in CSI or a member of CSTC/CornerStone, plaintiff is not entitled to this relief. This cause of action is therefore dismissed.
Plaintiff's sixteenth cause of action states that it is "for alter ego doctrine." Likewise,
plaintiff's seventeenth cause of action is "to pierce the corporate veil/limited liability company veil." These are not causes of action at all; rather, they are legal theories under which, in certain circumstances, personal liability may be found despite the erection of corporate or similar barriers by a debtor ( see e.g. CH v RH , 18 Misc 3d 268 [Sup Ct Nassau Cty 2007]). As they do not state causes of action, they are dismissed.
The Derivative Claims (passim )
The original complaint filed and served in this case listed Lawrence A. Davis as the sole plaintiff. On the last day on which an amended complaint could be served as a matter of right, plaintiff served and filed an amended complaint along with a supplemental summons. The supplemental summons amends the caption to add Lawrence A. Davis in a derivative capacity on behalf of Combined Solutions, Inc., and CornerStone Telephone Company, LLC. This supplemental summons was filed without the requisite court order or consent of defendants required by CPLR 305 (a).
In addition, the amended complaint has a "boilerplate" paragraph added at the conclusion of each cause of action. This paragraph seeks to prosecute each of the causes of action on behalf of CSI and CornerStone. Defendants object to this amendment on both procedural and substantive grounds.
Plaintiff's response to these objections is to assert that he is entitled to direct relief in his individual capacity. His counsel states, in his memorandum of law (at p 3), "Mr. Davis has further and additional relief available under the framed derivative claims in a derivative capacity for completeness sake and to thwart any contentions that such a course of pleading would be required in the first instance." Later, (at p 28), counsel elaborates, "Out of an abundance of caution and for completeness sake the derivative aspect and status of Combined Solutions, Inc., has likewise been set forth as a party plaintiff in the derivative aspect as a belt and suspenders' approach and to otherwise thwart any contentions contrarywise."
In short, plaintiff concedes that the derivative claims were asserted only out of an abundance of caution. Plaintiff reiterates throughout his pleadings that he, in his individual capacity, is the only person who was harmed by the acts alleged of the defendants. There is thus no need for an independent analysis of the causes of action as derivative claims.
In any event, standing to pursue a derivative claim on behalf of a corporation requires status as a shareholder, and standing to pursue a derivative claim on behalf of a limited liability company requires status as a member ( Tzolis v Wolff , 10 NY3d 100 ). As noted throughout this Decision and Order, plaintiff has failed to establish a sufficient factual basis for the conclusion that he is or was either a shareholder of CSI or a member of CSTC/CornerStone. As a result, he lacks standing to pursue any of the derivative claims.
Plaintiff's Cross-Motion to File a Second Amended Complaint
In response to defendants' motion to dismiss the amended complaint, plaintiff has cross-moved for permission to amend his pleadings yet again. His proposed second amended complaint is forty-one (41) pages longer than his first amended complaint, and it contains ninety-nine (99) additional numbered paragraphs. Plaintiff does not suggest the reasons for which he is seeking to replace one overly burdensome pleading with an even denser tome, nor does a perusal of the one hundred ninety-six (196) page, four hundred eighty-eight (488) paragraph proposed second amended complaint yield anything beyond a heightened appreciation for the Taoist maxim, "More words mean less."
Defendants vehemently oppose the cross-motion. They cite precedent for the proposition that "the court should not be compelled to wade through a mass of verbiage and superfluous matter in order to pick out an allegation here and there, which, pieced together with other statements taken from another part of the complaint, will state a cause of action" ( Safer Beef Co. v Northern Boneless Beef, 15 AD2d 479, 480 [1st Dept 1961]). They urge that "[t]he time of the court should not be taken in a prolonged study of a long, tiresome, tedious, prolix, involved and loosely drawn complaint in an effort to save it" ( Geist v Rolls Royce Ltd., 18 AD2d 631, 632 [1st Dept 1962]).
As noted earlier, CPLR 3014 mandates "plain and concise" pleading. While the first amended complaint flouted this principle, the Court opted against dismissal with leave to replead in order to spare defendants any additional and unnecessary expenditure of time and resources. Inasmuch as the ends of justice would not be served by accepting a proposed second amended complaint that treats CPLR 3014 as mere surplusage, plaintiff's application is without merit.
While leave to amend pleadings should be liberally granted, the Court must be mindful of the "underlying merit of the causes of action asserted therein, since to do otherwise would be a waste of judicial resources" ( McKiernan v McKiernan, 207 AD2d 825 [2d Dept 1994]). Here, plaintiff does not even attempt to suggest what the proposed second amended complaint can accomplish which the first amended complaint could not. Accordingly, plaintiff's cross-motion is denied.
In light of this determination, the Court need not address the issues raised by defendant Doerr regarding the propriety of service upon him as they are academic.
Accordingly, it is
ORDERED that defendants' motion to dismiss the amended complaint with prejudice is granted; and it is further
ORDERED that plaintiff's cross-motion for permission to serve a second amended complaint is denied.
This constitutes the Decision and Order of the Court. All papers including this Decision and Order are returned to defendants' counsel. The signing of this Decision and Order shall not constitute entry or filing under CPLR Rule 2220. Counsel is not relieved from the applicable provisions of that Rule respecting filing, entry and Notice of Entry.