Opinion
602898/05.
Decided April 9, 2008.
Plaintiffs' counsel are: David H. Pikus, Bressler, New York, NY.
Charles D. Mooney, McCanliss Early LLP, New York, NY.
Linda Mandel Gates and Ralph R. Hochberg, Platzer, Swergold, Karlin, Levine, Goldberg Jaslow, LLP, Americas, New York, NY.
Defendants' counsel are: Honorable Israel Rubin and Rachel Sims, Greenberg Traurig, Met Life BUilding, New York, NY.
Donald B. Liberman, Garfield, NJ.
Plaintiff (sometimes "Guardian Evans") is the court appointed article 81 financial guardian for Shari Perl ("Shari"). He is also the co-trustee of the Shari Perl Family Trust. These appointments were made only after the original action was brought. Guardian Evans has now interposed a third amended complaint on behalf of his ward. Defendant Andrea Perl ("Andrea") as trustee and certain business defendants have brought a pre-answer motion to dismiss the fifth through fourteenth causes of action asserted in the third amended complaint. (seq # 018). Andrea has now joined in that motion in her individual capacity. Defendant Rebecca Perl (" Rebecca") has separately moved to dismiss the causes of action asserted as to her (seq # 020). Defendant Gerald Shallo ("Shallo") has separately moved to dismiss the causes of action asserted as to him (seq # 021).
The claims against the business entities in the third amended complaint do not perfectly correlate with the entities listed in the caption. The court assumes these to be ministerial problems that can be corrected once the substantive issues are decided.
The law firm of Platzer, Swergold, Karlin, Levine, Goldberg and Jaslow, LLP ("Platzer law firm") separately moved to be relieved as counsel of record for certain defendants (# 019). This motion has already been denied by the court. Guardian Evans cross moved to: disqualify the Platzer law firm; appoint a receiver; appoint a successor trustee in place of Andrea Perl of the Shari Perl Family trust; hold a hearing on whether a guardian ad litem should be appointed for Bridget Hannah Herman; strike Rebecca Perl's reply in support of her motion to dismiss and strike Andrea's reply in support of her motion to dismiss . Guardian Evans subsequently withdrew his application to have a receiver appointed (see Stipulation dated December 19, 2007). Although the parties represented to the court that the only relief left in the cross-motion pertained to disqualification of the Platzer law firm, other requested relief has not been formally withdrawn. Thus, still outstanding is Guardian Evan's request for: the appointment of a successor trustee, a guardian ad litem hearing and to strike reply papers on the motions to dismiss.
Because all of the motions and cross-motion are substantially interrelated and rely on similar facts and arguments made sometimes in overlapping papers, they are consolidated for consideration and determination in this single decision. At the outset the court rejects arguments that the court should refuse to consider any of the relief requested in Guardian Evan's cross-motion because it was made at a time when a stay of the proceedings was in effect. Regardless of whether the temporary restraining order ("TRO") contained in the August 27, 2007 Order to Show Cause (motions seq. # 019) precluded the cross-motion at the time it was originally interposed, that TRO had long expired by the time the cross-motion was actually submitted to the court. In the interim, and certainly by the time of submission, all parties had been given an opportunity to oppose the relief requested in the cross-motion on the merits. Thus the relief requested by Guardian Evans will be considered on the merits.
Disqualification of the Platzer law firm and related relief
The court will first address the Platzer law firm's status and related issues before turning to the issues raised in the motions to dismiss.
The Platzer law firm originally moved to be relieved as counsel of record for defendants 145-147 Mulberry Realty Co., LLC., Perl Properties, Inc., 494 Broadway Realty Co., LLC., 223-227 West 36th Street Realty Co., LLC, 256-258 West 36th Street Realty Co., LLC., Perlrose Realty Co., LLC and 143 Mulberry Realty Co., LLC. (collectively "business defendants" or "business entities"). The court denied the motion to be relieved in its decision made in open court and on the record on October 25, 2007.
The Platzer law firm never moved the be relieved, and always intended to remain, as counsel of record for Andrea Perl ("Andrea") in her capacity as trustee of the Shari Perl Family Trust. As a consequence of the court's October 25, 2007 decision, the Platzer law firm currently remains counsel of record for the business defendants and Andrea, but only in her capacity as trustee of the Shari Perl Family trust. Although Andrea, in her individual capacity, was represented by the Platzer law firm earlier in this action, she is presently represented by the law firm of Greenberg Trauig LP.
Guardian Evans cross-moved for an order disqualifying the Platzer law firm from representing the business defendants and Andrea, as trustee, in this action. He further cross-moved for an order appointing a successor trustee in place of Andrea Perl of the Shari Perl Family trust. Plaintiff's arguments in support of its motion to disqualify the Platzer law firm somewhat overlap with whether a successor trustee should be appointed in place of Andrea for the Shari Perl family Trust. Thus, both requests for relief will be addressed together.
Plaintiff Evans claims that the Platzer Law firm clients have conflict of interest that are inimical to one another in violation of Disciplinary Rule ("DR") 5-105 . He also claims that the Platzer law firm may be required to testify in this action. Both arguments are separately advanced to require disqualification.
The claimed conflicts of interest stem largely from the allegations made in plaintiff's third amended complaint. The fifth through eighth causes of action are against Andrea and/or Andrea and Shallo. They concern Andrea's management of the family businesses and trusts and claim acts of wrongdoing amounting to breaches of fiduciary duties and self dealing. The ninth through fourteenth causes of action are against the various business entities. They are derivative actions for accountings based upon the same allegations of wrongdoing by Andrea that are alleged in the fifth through eighth causes of action. Guardian Evans claims that the Platzer law firm is hopelessly conflicted because it should be supporting, not resisting, his efforts to obtain accountings from Andrea, which he claims will ultimately accrue to the financial benefit of the business entities and their beneficial owners.
The burden of proving entitlement to disqualifying opposing counsel rests on the movant. Petrossian v. Grossman, 219 AD2d 587 (2nd dept. 1995). DR 5-105.A. provides:
"A lawyer shall decline proffered employment if the exercise of independent professional judgment in behalf of a client will be or is likely to be adversely affected by the acceptance of the proffered employment, or if it would likely to involve the lawyer in representing different interests, except to the extent permitted in DR 5-105 [1200.24](C)."
DR-5105.C. provides in pertinent part:
". . . . a lawyer may represent multiple clients if a disinterested lawyer would believe that the lawyer cab competently represent the interest of each and if each consents to the representation after full disclosure of the implications of the simultaneous representation and the advantages and risks involved."
The Platzer law firm denies that it is engaged in dual representation, arguing that it does not represent Andrea in her personal capacity, and has not done so since before this motion (seq. # 19) was brought. It further argues that although it does represent Andrea in her capacity as trustee of the Shari Perl Family trust, there is no express cause of action against asserted against her as trustee in the third amended complaint. Finally it argues that its clients have consented to dual representation, if any exists in this action.
The court rejects the Platzer law firm's claim that there are no aspects of dual representation in this case. Although they do not and have not for some time represented Andrea individually, the firm still represents Andrea in her capacity as trustee. While the third amended complaint states no specific cause of action against Andrea as trustee, the allegations against Andrea involve her management of properties and businesses partly owned by the trust. Thus there is no clear separation of allegations made against Andrea individually and as trustee of the Shari Perl Family trust. The court also rejects any claim of waiver. These closely held business entities are managed by Andrea, who in this context cannot fully exercise an independent waiver of their rights.
Dual representation, however, does not per se require disqualification. Dual representation of management and business entities in the context of derivative actions presents its own unique set of considerations. Where, as here, the business entities are closely held, so that management and the business entities they control are virtually indistinguishable, still other considerations should guide the court's analysis.
In general, although the business entity named in any derivative action is usually considered a passive litigant, it may well be that the relief requested requires an appearance and an answer by it. Such appearance should usually be made by an independent counsel, whose interest will not conflict with that of the individual defendant. Garlen v. Green Mansions, Inc., 9 AD2d 760 (1st dept. 1959). It has been recognized that, however, that in a meritless derivative action, separate counsel for the business entity may delay the matter and cause needless expense, which is ultimately borne by the beneficial owners.On the other hand, if the action has merit, then the expense of independent counsel may be justified. Schwartz v. Guterman, 109 Misc 2d 1004 (Sup. Ct. NY Co. 1981). Independent counsel may also be warranted if the business entity assumes an active role in the litigation or settlement negotiations. Schwartz v. Guterman;, supra; Bank of East Asia, Ltd. V. 150 Lafayette St. Property Investments, Co., 2004 WL 5329664 (Sup.Ct. NY co. 2004)(nor) (law firm disqualified from simultaneously representing limited partnership and general partner in derivative action where limited partnership was not a passive litigant).
It is usually not apparent from the beginning of an action whether it has merit and the retention of independent counsel is warranted. In this regard, Guardian Evan's claim, that his legal position is best for the business entities, cannot really be evaluated. If he is right then the business entities (and their beneficial owners) may stand to benefit financially. If he is wrong, however, the needless expense will be a burden to these business entities (and their owners). Since many of these entities are no longer ongoing operations and/or produce no income, the issue of expenses is a significant one. Where there is any doubt as to whether disqualification is warranted, however, the law favors disqualification. Schmidt v. Magnetic Head Corp., 101 AD2d 268 (2nd dept. 1984).
Nonetheless, the court should not simply knee jerk in favor of disqualification and require the hiring of new counsel unless it truly serves the needs of the business entities named in the litigation. Issues of disqualification still remain within the trial court's discretion. Hirschfeld v. Stahl, 194 AD2d 388 (1st dept. 1993). Where, as here, the management of the business entities is so closely related with the entities themselves, it may be that truly independent counsel can never be retained and it may not even be necessary for the parties to fully and fairly litigate their differences. See: Riccio, Rober J, Conflicts of Interest in Derivative Litigation Involving closely Held Corporations: An All or Nothing Approach to the Requirement of Independent Corporate Counsel, Journal of the Legal Profession; 31 J. Legal Prof. 337 (2007). In closely held entities there is usually no independent corporate governance from the management whose actions are being challenged. Consequently any counsel hired for the business entity will still be taking direction from the accused management. On the other hand, the challenger is often someone with a significant investment in the entity, who has appropriate incentive to pursue the litigation. Thus the absence of "independent" counsel will not affect the ferreting out of wrongdoing, if there is any, by those in control. This is in distinction to a public corporation and/or large, where: [1] there are usually officers and boards of directors that have decision making ability independent of those persons whose actions are being challenged and [2] the named plaintiff is often a nominal shareholder .
At bar, no interest of any of the business entities would be advanced by the disqualification of the Platzer law firm that is not being advanced by them now. Indeed disqualification would only be more costly to the business entities who would have to hire new counsel and bear expense of duplicate legal work, without any concomitant benefit.
Andrea and Shari together, through various ownership vehicles, have greatest beneficial interest in all of these defendant business entities and the assets they hold (see: Order, Gische, J. Dated 12/23/05). Since at least 1998 Andrea has indisputably been the only managing member and/or person with the legal right to make decisions for all of these business defendants. Shari, who had co-management responsibilities, resigned from her duties on March 31, 1998. There is some dispute about whether, and for how long, Shari still continued to participate in business matters thereafter. It is not disputed, however, that at some point Shari had serious drug abuse problems and that Andrea alone was making decisions about the family business holdings.If the Platzer law firm is disqualified, the business entities will be entitled to and will need to hire new counsel. At this point only Andrea has the legal right to hire new counsel. Who would these new counsel take direction from?Andrea is the only one with the legal right to give them instruction. Neither the Platzer law firm currently nor any newly retained counsel could act on their own or decide for themselves what legal positions they should take for the business entities. To do so would make counsel de facto receivers. Not only has Guardian Evans withdrawn his request for a receiver, but the record does not support such an appointment at this time. Guardian Evans claims of self dealing remain unproven allegations, and little actual proof has been put forward at this time.
Moreover, the problems that usually accompany dual representation in most derivative actions are not really present here. Shari's financial interest in these business entitles is significant and Guardian Evans will zealously pursue claims of wrongdoing on her behalf.Hiring new counsel for the business entities will not further safe guard the pursuing of these claims.
Under the circumstances of this case, the court finds that there is no basis for disqualification of the Platzer law firm on the basis of dual representation. .
On the issue of having the Platzer law firm testify, there is only the most passing of references to what, if anything, their testimony would be. This does not satisfy the movant's burden on disqualification. See: Swetnick v. Bell, 2008 NY Slip OP 30822 (U) (and cases cited therein).
The court also holds that there is no basis, at this time, to replace Andrea as trustee of the Shari Perl trust. Not only are the allegations regarding her past conduct as yet unproven, Guardian Evans has not shown any likelihood of success on these claims at this time. Moreover, there is no claim of ongoing and imminent misuse of assets, requiring the appointment of a third party to preserve assets. Finally Guardian Evans himself is presently co-trustee of the Shari Perl Family Trust and, thus, he can oversee and protect his ward's interest without the need for that appointment of others.
Motions to Dismiss
Motion sequences 18, 20 and 21 each seek pre answer dismissal based upon failure to state a cause of action under CPLR 3211(a)(7). Certain arguments in support of dismissal are based upon documentary evidence. CPLR 3211(a)(1). To the extent Guardian Evans has cross-moved to strike the reply submissions of both Rebecca Perl and Andrea Perl, such relief is denied. By the time these motions were submitted to the court, each party had a full and fair opportunity to develop a record and respond the claims of the other parties to the action. Thus, all of the papers submitted are being considered and the court will address all of the parties' arguments on their merits. Certain arguments by each of the defendants duplicate each other, while others are specific to individually moving defendants. Duplicated arguments are addressed collectively and individual arguments are addressed individually.
Submissions, however, made significantly after these motions were sub judice were unauthorized and are not considered by the court. The parties were given ample time to make arguments and their records on these motions before the date of submission.
In deciding whether plaintiff has stated a cause of action, thereby defeating defendants' motions, the court will consider whether the plaintiff has a cause of action rather than whether he has properly stated one. CPLR § 3211 (a) (7); Guggenheimer v. Ginzberg, 43 NY2d 268 (1977); Rovello v. Orofino Realty Co., 40 NY2d 633, 634 (1976). The facts in the pleading will be accepted as true and afforded the benefit of every possible favorable inference EBC I, Inc v Goldman, Sachs Co. , 5 NY3d 11 , 19; Sokoloff v Harriman Estates Development Corp., 96 NY2d 409, 414; P.T. Bank Central Asia v ABN AMRO Bank NV, 301 AD2d 373, 375-6 [1st Dept 2003]), unless clearly contradicted by evidence submitted by the moving parties in connection with their motions ( see Zanett Lombardier, Ltd v Maslow , 29 AD3d 495 [1st Dept 2006]).Although defendants have not expressly cited CPLR 3211 (a) (1) as the basis for their motion, they are relying on certain documents as being dispositive plaintiff's claims as well. Where a motion is premised upon the existence of documentary evidence, such evidence must definitively dispose of plaintiff's claims. Bronxville Knolls Inc. v. Webster Town Center Partnership, 221 AD2d 248 (1st dept. 1995).
Statute of limitations
A. The Derivative Actions
Defendants claim that the ninth through fourteenth derivative actions for accountings are barred by the applicable statute of limitations.
An action for an accounting requires a fiduciary relationship between the parties and proof of wrongdoing. Hamilton v. Patrolmen's Benevolent Ass'n of the City of New York, 88 NYS2d 683 (Sup.Ct. 1949). It is an equitable remedy that may be predicated on claims of breach of fiduciary duty. Trepuk v. Frank, 104 Ad2d 780 (1st dept. 1984). Consequently it is subject to a six year statute of limitations. Kaszirer v. Kazirer, 286 AD2d 598 (1st dept. 2001). The only real dispute between the parties is when that six year period begins to run. Movants argue that the six year period accrues no later than six years prior to the commencement of this action, which was on August 25, 2005. Thus, they argue any claims that predate August 26, 1999 are timed barred. Guardian Evans claims that the statute of limitations has not yet begun to run because Andrea has neither openly repudiated her fiduciary obligations nor judicially settled her accounts.
The Court of Appeals has held that the time within which a proceeding seeking an accounting must be commenced begins to run either when the fiduciary's account is judicially settled or when there is an open repudiation by the fiduciary of his or her obligations. Matter of Babarash, 31 NY2d 76 (1972). Until either event occurs, the statute of limitations does not begin to run. Westchester Religious Institute v. Kamerman, 262 AD2d 131 (1st dept. 1999); In re Mueller, 853 NYS2d 245 (Sur.Ct. West Co. 2008). In the context of a trust, the requisite repudiation may be accomplished by a defendants resignation as trustee and a surrender of the trusteeship to a successor. Tydings v. Greenfiled, Stein Senior, LLP , 43 AD3d 680 , 683 (1st dept. 2007). In a non trust context, repudiation was found to have occurred upon resignation from the position that gave rise to the fiduciary relationship. Westchester Religious Institute v. Kamerman, supra .
At bar there has not been any judicial settlement of account. Nor has Andrea repudiated her fiduciary obligations. She continues to have the same management responsibilities over the business entities that she previously had. Andrea has not resigned any positions. These are the management responsibilities that give rise to the fiduciary relationship that forms the underpinning for Guardian Evans causes of action for an accounting.Nor have these business entities been dissolved. Guardian Evans causes of action for accountings, therefore, are not barred by the applicable statutes of limitation.
Although Andrea argues on this motion that at least some of the business entities have been dissoved, this point was rejected in the courts December 23, 2005 decision and order.
B. The Non-Derivative actions
The fifth through seventh causes of action are based on many claims. Plaintiff seeks an "accounting" based on self dealing, waste and breach of fiduciary duty. He also seeks monetary damages. One claim concerns the sale of 645-647 Broadway. According the deed, that property was sold on October 4, 1996 by Shari Perl and Andrea Perl as trustees of the Calvin Perl Revocable Trust. Both Shari and Andreas signed the deed as owners. At the time of Calvin Perl's death, the Calvin Perl Revocable Trust terminated in favor of two trusts respectively primarily set up for the benefit of Shari and Andrea. Calvin Perl died in 2000.
In addressing this claim the court is overlooking, for now, the fact that Andrea has not been sued in her capacity as trustee of the Calvin Perl Trust.
Andrea argues that to the extent the fifth through eighth causes of action seek monetary damages on account of this transaction, they are barred by a three year statute of limitations. She further argues that the equitable relief is barred by the applicable six year statute of limitations. Shari argues that the statue of limitations does not accrue until Andrea has repudiated her obligations to act as a fiduciary. They also argue that Shari is entitled to the tolling of a statue of limitations because she is under a disability by reason of insanity. CPLR 208.
It is well established that the statute of limitations applicable to a breach of fiduciary duty is three years if money damages are sought, but six years for equitable relief. Kaufman v. Cohen, 307 AD2d 113 (1st dept. 2003). As set forth above, that limitation period does not begin to accrue until there is a repudiation of the fiduciary obligation giving rise to the claim or a judicial settlement of the account. The Calvin Perl Trust by its own terms ended with Calvin Perl's death. At that time both Andrea and Shari ceased to be fiduciaries of the Calvin Perl Trust and any causes of action against them in such capacity began to accrue at that time.
In accordance with this analysis, any claim for monetary relief relative to the sale of 645-647 Broadway is barred by the applicable statute of limitations. The claim for an accounting, however, survives.
The court rejects Guardian Evan's claim that Shari is entitled to the tolling of the statute of limitations because of her drug addiction. Such a claim and the facts to support it are not alleged in the third amended complaint. They are only raised in a memorandum of law submitted on this motion. The fact that she had, or may still have, a drug addiction problem, standing alone, may or may not support a tolling. See: Eisenbach v. Metropolitan Transportation Authority, 62 NY2d 973 (1984). The appointment of a financial article 81 Guardian likewise. At a minimum Shari has not alleged that the mental disability existed at the time the cause of action accrued and/or when or if it has ceased. CPLR 208.
Prior Demands for Derivative actions
Defendants claim that the derivative actions need to be dismissed because no demand was made on any LLC for an accounting prior to the initiation of the actions.
There is no dispute that the complaint neither alleges that a demand was made on any of the business defendants to bring an action for an accounting, nor that a demand would have been unnecessary. Movants claim that this is fatal to the complaint and requires dismissal of such causes of action. Guardian Evans argues that no demand is necessary in the context of an LLC's and, even if necessary, it is obvious that such action would have been futile where the entities are controlled by Andrea and have no real separate identity. Andrea counters that she would have gladly offered, and in fact did offer, Guardian Evans any and all financial information he wanted to avoid this costly protracted litigation.
The court rejects Guardian Evans' argument that, as a matter of law, no prior demand is necessary before a derivative action can be brought against an LLC. This argument rests primarily on the fact that there is no explicit requirement for a demand in the LLC statute. There is, however, no explicit right to bring a derivative action contained within the LLC statute either.
As the Court of Appeals held in the recent case of Tzolis v. Wolff ( 10 NY3d 100) there is a common law right to bring a derivative action against an LLC. See also: Bischoff v. Boar's Head Provisions Co. Inc ., 38 AD3d 440 (1st dept. 2007). The common law underpinning of a derivative action is that a faithless trustee refused to bring the action on behalf of the business entity his or herself. Tzolis v. Wolff , supra .Thus the requirement of a demand prior to the institution of derivative litigation is an necessary element of the claim. It is predicated on basic principles of business governance, ie that those entrusted with the management of a corporation who have the primary responsibility for acting in the name of the corporation are often in the best position to correct alleged abuses without resort to the courts. BCL § 626; Barr v. Wackman, 36 NY2d 371 (1975). There are no cases expressly addressing the issue of the prior demand in the context of derivative actions against an LLC. This is most likely because the right to even bring a derivative action at all was only recently established by the Courts of Appeals. Tzolis v. Wolff, supra . Borrowing, however, from the developed law applicable to derivative actions in a corporate context, the same policy considerations apply and the law applicable to LLCs should be consistent. Thus this court holds that before bringing a derivative action against an LLC for an accounting, the member must make a prior demand on the LLC or otherwise make a showing that such a demand would have been futile.
Since it is conceded that no demands were made, the only issue left for the court's consideration is whether such a demand would have been futile. The court holds that it would have been. Although Andrea claims that she would have gladly provided (and actually did provide) all the documentation Guardian Evans would or could have wanted, the underlying consideration on an accounting is to critically evaluate the documentation for the purpose of ferreting out wrong doing, if any, by those in management. Given the identity of interest between Andrea and these closely held business entities, any demand that Andrea ferret out her own wrongdoing would have been futile. Thus, the court holds that in this context no demand was necessary before any derivative action was commenced against the business defendants.
Financial Information already given and/or offered
Movants claim that the accounting actions should be dismissed because accountings have already been rendered. The parties factually dispute this. They dispute the nature of the documents that were offered or provided. The factual dispute about what information has already been offered and whether it constitutes an accounting cannot be resolved at a pleading stage. The court will not dismiss the third amended complaint on this basis.
The parties' dispute on this issue, however, is really embroiled with a larger dispute about the proper format of an accounting and at what point in the proceedings should they be rendered. Andrea argues that the actual books and records of the corporation should suffice. Guardian Evans argues that the fiduciary is required to organize the financial information into schedules. He further argues that he should not be required to look through the financial documents of the business entities until these accountings are first rendered. The impetus for this dispute is really who will bear the enormous cost associated with reviewing and organizing the financial records of the business entities.
The court could not find, nor did the parties produce, any legal authority regarding the form an accounting must take in a non-estate context. The court, however, need not address this collateral dispute at this time. Even though the causes of action for accountings survive pre-answer dismissal (see decision , supra and infra), no accounting will be ordered unless and until Guardian Evans prevails at trial. Guardian Evans is required to prove the elements of a claim for accounting and his allegations alone do not entitle him to his ultimate relief at this time.
As for reviewing the books and records of the business defendants, they should and will be made available to Guardian Evans in discovery. He is free to review any and/or all such records and rely upon what he thinks will prove his claim.
Failure to Allege Facts Constituting Wrongdoing
Movants separately claim that the pleadings fail to state facts which support any finding of a breach of fiduciary duty which is the underpinning of the Fifth through Fourteenth causes of action. In making these arguments defendants rely upon affidavits and documents, including financial documents and real estate appraisals, which they argue conclusively show that the events Guardian Evans claims are wrongdoing, have legitimate business explanations. Affidavits offered in support of pre-answer motion to dismiss for failure to state a claim should not be considered by the court. Rovello v. Orofino Realty Co., Inc., 40 NY2d 633 (1976). Moreover, financial records and real estate appraisals are not the kind of conclusive documentary evidence that justifies a dismissal of a pleading before the joinder of issue. Leon v. Martinez, 84 NY2d 83 (1994).
Guardian Evans has certainly alleged that Andrea engaged in certain financial transactions that benefitted her and others to the detriment of Shari. While the claims are not fully developed, dismissal at this stage is not warranted. On a motion to dismiss it is not the court's role to determine the bona fides of these issues or to examine facts that contradict the allegations. The pleading survives at this time.
Failure to Allege that Plaintiff has no Adequate Remedy at Law
It is black letter law that in order to prevail on an equitable claim plaintiff must show that he has no adequate remedy at law. Andrea argues that failure to plead this element of plaintiff's equitable claims warrants dismissal. It is also well recognized that alternative pleadings that include both legal and equitable relief withstand ore-answer dismissal. D'Amour v. Ohrenstein Brown LLP, 17 Misc 3d 1130 (A) (NY Co. Sup. Ct. 2007). The fact that the pleading does not include the actual language that plaintiff has no legal remedy is not fatal to the equitable claims at this point in the litigation. Certainly as part of his case plaintiff is required to prove this element in order to obtain any actual equitable relief. The court cannot, however, conclude at the pleading stage that an adequate legal remedy otherwise exists warranting dismissal of the complaint. Cirri v. Daily News, LP, 9 Misc 3d 1130 (A) (NY Co. Sup. Ct. 2005).
Rebecca Perl's Separate Issues
Rebecca Perl is identified as a "nominal" defendant in the third amended complaint. Allegations as they expressly relate to her are that with respect to 143 Mulberry Realty Co., LLC she is a 3% owner in her own right and also a 3% owner as trustee of the Bridget Hannah Herman Trust. In addition it is alleged that the Bridget Hannah Herman Trust is a residual beneficiary of the HAT trust. Guardian Evans has asserted a third cause of action in the third amended complaint to set aside the HAT trust.
Rebecca argues that there are no allegations of wrongdoing against her and that she should not be dragged into this expensive and complicated litigation. She also presents a copy of the HAT trust, which shows that the Bridget Hannah Herman Trust is not the trust residual beneficiary. Thus, Rebecca argues, there is no basis for her to be a defendant in any capacity, not even nominally. In reply, Rebecca argues for the first time that, as a matter of law, there is no cause of action for an accounting against a managing member of an LLC.
Guardian Evans concedes that any allegations regarding the Bridget Hannah Herman Trust being a residual beneficiary of the HAT trust are incorrect. He concedes that Rebecca has no interest, nominal or otherwise, in the third cause of action that seeks to set aside the HAT trust. As to 143 Mulberry Realty Co., LLC, Guardian Evans argues that because he is seeking an accounting from the managing member, Rebecca has an interest in these claims, both as a direct owner and as a trustee.
The fact that Rebecca has an ownership interest in 143 Mulberry Realty Co., LLC identifies her as a someone with an interest in the outcome of this litigation. CPLR 1001. There is no error with Guardian Evans making her a part of this derivative action. While Rebecca is concerned about the cost of litigation, she can choose to what extent she will involve herself in the underlying claims. Rebecca's argument that, as a matter of law, there is no right to an accounting from a managing member is dubious. Rebecca's argument is based upon the absence of such right under statute. An accounting, however, is an equitable cause of action, arising out a fiduciary relationship. Hamilton v. Patrolmen's Benevolent Ass'n of the City of New York, supra . Managing members of LLC's have fiduciary obligations to their membership. Nathanson v. Nathanson , 20 AD3d 403 (2nd dept. 2005). The court of Appeals has recently recognized that members of a LLC have common law rights that may not be expressly provided for in the LLC statute. Tzolis v. Wolff, supra . An accounting is, therefore, a viable remedy in the event of fiduciary misconduct.
The motion by Rebecca is granted only to the extent that the third cause of action in the third amended complaint which seeks to set aside the HAT trust is dismissed as to her.
Shallo's Separate Issues
Shallo seeks to have the sixth and seventh causes of action in the third amended complaint dismissed as to him. Shallo claims that the allegations are confusing and that they do not state a cause of action against him. He also states that to the extent they concern the sale of the real estate located at 32 West 22nd Street, New York, NY, the documentary proof warrants dismissal of any claim of wrong doing.
While the court agrees that the third amended complaint is confusing in that it does not particularly distinguish the alleged claims of wrongdoing against Andrea from those against Shallo, Guardian Even's submissions on this motion clarify that the claims against Shallo are limited to the sale of the West 22nd Street property. In that regard there are allegations that a Shallo had a fiduciary relationship by virtue of his exclusive brokerage agreement to sell the property. It is alleged that he breached that obligation when he purchased the real estate for an entity in which he had an ownership interest and that the purchase was made than for less than fair market value. These allegations are sufficient to make a claim against Shallo with respect to that transaction that survive a motion to dismiss the pleadings.
Shallo claims that the challenged transaction was a sale of the property for fair market value. He relies on real estate appraisals that conclusively prove that the sale was for fair market value. Shallo also claims that the original acquisition of the West 22nd street property was structured to afford Shari, Andrea and their mutual business holdings significant tax advantages from a like-kind exchange under IRS 1031.
Appraisals are not the kind of documentary evidence that would defeat a pleading. McNamara v. Board of Assessors of Town of Preble, 39 AD2d 817 (3rd dept. 1972).Nor are factual issues about the net financial effect of the transaction susceptible to adjudication at this procedural point in the action.
Guardian Ad Litem Hearing for Bridget Hannah Herman
In its December 23, 2005 decision and order, the court, on its own motion, raised for hearing the issue of whether Bridget Herman, Shari's minor daughter, needed to have a guardian ad litem ("GAL") appointed to protect her financial stake in the outcome of this litigation. No hearing was held only because the case took a markedly different course. Shortly after the court's earlier decision, a petition to have an article 81 guardian appointed for Shari was brought. That Guardian now seeks to have the GAL hearing held. The only opposition raised is that Bryan Herman, Bridget's father who apparently has legal custody, can adequately protect his daughter's interest in this matter.
While the court held in abeyance the matter of whether Bridget should have a GAL in this action, it never intended to abandoned the issue. Indeed as all parties concede, the action is really no further along than when the court first made its order requiring a GAL hearing. The concerns raised in this court's earlier decision remain unresolved. The court, therefore, is setting down the matter of whether Bridget Hannah needs a GAL for a hearing on June 5, 2008 at 2:30 pm in part 10, 80 Centre Street (room 122), New York, New York.
.Although some parties argue that Mr. Herman should be allowed to protect his daughter's financial interest in this case, the court notes that Mr. Herman has never presented to the court his ability and willingness to do so. This is despite the fact that the court has required that Mr. Herman be served with legal papers in this matter. The court pointed out in its December 23, 2005 decision certain concerns that it had about whether Mr. Herman's contentious divorce with Shari may impact on his ability to serve his daughter's interest in matters that primarily concern his ex-wife's personal property. This needs to be addressed by Mr. Herman in a manner satisfactory to the court before the court simply demurs to his ability to act for Bridget. Mr. Herman can present his position at the GAL hearing that has now been scheduled. Guardian Evans cross-motion for a GAL hearing is, therefore, granted and he is directed to serve Mr. Herman with a copy of this decision and order.
Additional Matters
The motion papers submitted to the court are replete with frustration expressed by all parties that this case has progressed slowly. Everyone is concerned about the mounting legal costs and who should bear them. The expenses are a consequence of the parties' inability to reach agreement on the various issues raised in this case. They certainly can be controlled or reduced by less litigation and more cooperation, but that is a matter for the parties.
The court agrees that this action has progressed slowly and that it need to proceed more expeditiously. To that end the court is setting a schedule for the parties to follow.
The defendants who have not yet answered the complaint are directed to do so within 10 days of the date of this decision. Replys, if necessary, shall be served no later than 20 days after receipt of the answer.
A preliminary conference to set up a comprehensive discovery schedule is set before this court for June 5, 2008 at 2:30 pm.
Conclusion
In accordance herewith it is hereby:
ORDERED that the motion of Andrea and the business defendants to dismiss the complaint (seq. # 18) is granted only to the extent that claims for money damages concerning the sale of 645-647 Broadway are hereby dismissed, and it is further
ORDERED that the motion of Andrea and the business defendants to dismiss the complaint (seq. # 18) is otherwise denied, and it is further
ORDERED that the cross motion of plaintiff (seq. # 019) is denied to the extent it seeks to disqualify the Platzer law firm, and it is further
ORDERED that the cross motion of plaintiff (seq. # 019) is denied to the extent that is seeks to have the court appoint a successor trustee in place of Andrea Perl of the Shari Perl Family trust, and it is further
ORDERED that the cross motion of plaintiff (seq. # 019) is denied to the extent that it seeks to strike the reply papers of Rebecca Perl on motion sequence # 020), and it is further
ORDERED that the cross motion of plaintiff (seq. # 019) is denied to the extent that it seeks to strike the reply papers of Andrea Perl on motion sequence # 018, and it is further
ORDERED that the cross-motion of plaintiff (seq. # 019) is granted to the extent that the court directs that there be a hearing on whether to appoint a Guardian Ad Litem for Bridget Hannah Herman on June 5, 2008 at 2:30 pm in part 10 of the courthouse located at 80 Centre Street (room 122) New York, New York, and it is further
ORDERED that Guardian Evans is directed to serve a copy of this decision and order upon Mr. Herman and file proof of such service on or before the June 5, 2008 hearing date, and it is further
ORDERED that Rebecca Perl's motion to dismiss (seq # 20) is granted only to the extent that any claims made with respect to her as the trustee of the Bridget Perl trust in connection with the HAT trust, including the third cause of action, are hereby dismissed and stricken from the third amended complaint, and it is further
ORDERED that Rebecca Perl's motion to dismiss (seq # 20) is otherwise denied, and it is further
ORDERED that Gerald A. Shallow's motion to dismiss (seq # 21) is denied only insofar as the third amended complaint set forth a cause of action against him with respect to the sale of the real estate located at 32 West 22nd Street, New York, New York, and it is further
ORDERED that the defendants who have not yet answered the complaint are directed to do so within 10 days of the date of this decision. Replies, if necessary, shall be served no later than 20 days after receipt of the answer, and it is further
ORDERED that a preliminary conference to set up a comprehensive discovery schedule is set before this court, part 10, located at 80 Centre Street (room 122), New York, New York for June 5, 2008 at 2:30 pm., and it is further
ORDERED that any requested relief not expressly granted herein is denied and any arguments not expressly addressed herein are rejected, and it is further
ORDERED that this shall constitute the decision and order of the court.