Opinion
Index No. 528729/2022 Motion Seq. 1 .& 2
03-15-2023
In the Matter of the Application of CHANA VASHOVSKY, individually and derivatively On behalf of HUDSON VALLEY NY HOLDINGS LLC, Petitioner, v. YOSEF ZABLOCKI and NATIONAL JEWISH CONVENTION CENTER, Respondents, For the Dissolution of HUDSON VALLEY NY IN SUPPORT OF MOTION HOLDINGS LLC and other relief, TO- DISMISS PETITION and HUDSON VALLEY NY HOLDINGS LLC, Nominal Defendant,
Unpublished Opinion
DECISION AND ORDER
LEON RUCHELSMAN, JUDGE
The petitioner has moved seeking, dissolution. The respondent opposes the petition and has cross-moved seeking to consolidate this action with the companion action. Papers were submitted by the parties and arguments held. After reviewing all the arguments this court now makes the following determination.
As recorded in prior orders in a companion, case (Index Number 507373/2021) the petitioner and respondent are partners in Hudson Valley NY Holdings LLC, an entity that owns the Hudson Valley Resort Hotel. The. parties have each accused the other of misappropriation, breaches of fiduciary duty an other improprieties. This action and petition seeking dissolution has been filed. As noted, the request seeking dissolution is opposed, CPLR §3211(a)(4) provides that a motion to dismiss a lawsuit, on the grounds another lawsuit is pending should be granted when "both suits, arise, out of the- same subject matter or series of alleged wrongs" (id, Aurora Loan Services LLC v. Reid, 132 A.D.3d 778, 17 N.Y.S.3d 894 [2d Dept., 2015]). Thus, where the reliefs sought in the two actions are "substantially the same" then dismissal is proper (Scottsdale Insurance Company v. Indemnity Insurance Corp., RRG, 110 A.D.3d 783, 974 N.Y.S.2d 476 [2d Dept., 2013]). The term "substantially the same" is defined as a cause of action sufficiently similar to a simultaneously pending cause of action, when the ruling of one may directly conflict with the ruling, of the other (see, Diaz v. Philip Morris Companies, Inc., 28 A.D.3d 703, 815 N.Y.S.2d 109 [2d Dept., 2006]). Thus, a motion to dismiss made in this case should be granted where an identity of parties and causes of action in the pending action raises the danger of conflicting rulings. "CPLR 3211(a) (4) vests a court with broad discretion in considering whether to dismiss an action-on the ground that another action is pending between the same parties on the same cause of action" (Whitney v. Whitney, 57 N.Y.S.2d 731, 454 N.Y.S.2d 977 [1982]).
In this- case dissolution is sought pursuant to Limited Liability Company Law §701 and §702. The prior action contained a cause of action for dissolution. An examination of that cause of action is therefore necessary. The second amended complaint in the prior action, asserted as follows: "Plaintiff repeats, realleges, and fully incorporates each of the allegations in the above paragraphs. Nineteenth [sic] Vashovsky and Zablocki have been members in a corporation under New York law since 2019. Vashovsky and Zablocki agreed that all profits and losses of the HVNY would be shared equally. Zablocki has been willfully breaching the Agreement among the members, including by transferring, and attempting to transfer, HVNY assets to himself, NJCC or third parties and, consequently, to deny Vashovsky the benefits of HVNY. Zablocki has been conducting himself in matters relating to HVNY which are not reasonably practicable for carrying on the business of HVNY, including diverting assets, increasingly leaving Vashovsky out of the decision-making process, and having constant disputes with Vashovsky and her counsel regarding HVNY. Zablocki has and is prejudicially and adversely affecting HVNY, including by transferring, and attempting to transfer, HVNY assets to himself, NJCC or third parties and, consequently, to deny Vashovsky the benefits of HVNY. Zablocki and/or NJCC is unwilling to amicably dissolve HVNY without court intervention. An accounting of HVNY assets and dissolution of HVNY is necessary, appropriate, and equitable. An actual and justiciable controversy exists governing the jural relations of the Parties requiring the Court to declare the rights of the Parties. Vashovsky has no adequate remedy at law. Vashovsky is entitled to court dissolution of HVNY authorized under common law" (see, Second Amended Complaint of Index Number 507373/2021, ¶¶ 278-288 [NYSCEF Doc. No. 210]).
Thus, while many of the allegations, are similar, the prior action seeks dissolution of a limited liability company pursuant to the common law. However, it is well settled that to state a claim for common law dissolution the minority shareholder must plead factual allegations giving rise to fraud, misappropriation or personal use of corporate assets (Liebert, v. Clapp, 13 N.Y.2d 313, 247 N.Y.S.2d 102 [1963]). Thus, common-law dissolution remains a viable cause of action in New York. Where statutory dissolution is unavailable then ''shareholders in that situation have had, and continue to have, recourse in the form of common-law dissolution. Common-law dissolution, which predates BCL §1104-a is an equitable cause, of action, which permits shareholders below the 20% ownership threshold to seek dissolution of a private corporation under certain circumstances of malfeasance. Although common-law dissolution cases are relatively rare in New York, a body of case law has evolved (and continues to evolve) that sheds light on this cause of action, the burden Of proof necessary to sustain such a cause of action., and the available remedies if liability is found to exist" (see, The Contours of Common-Law Dissolution in New York, by Phillip Halpern, New York States Bar Journal, March/April 2008). However, that legal remedy is not available in limited liability companies. In Matter of 154 5 Ocean Avenue LLC, 72 A.D.3d 121, 893 N.Y.S.2d 590 [2d Dept., 2010] the court held that the sole basis for dissolution of a limited liability company were the grounds outlined in Limited Liability Company Law §702, namely judicial dissolution upon proof -that it is "not reasonably practicable to carry on its -business in conformity with the articles of organization or operating agreement" (id). This is a more stringent standard than the dissolution of an ordinary corporation (Kassab v. Kasab, 195 A.D.3d 830, 145 N.Y.S.3d 836 [2d Dept., 2021]). Thus, the second amended complaint did not really allege a viable cause of action since in all likelihood there is no common law dissolution of a limited liability corporation, Therefore, this petition is not substantially the same as the prior action since the prior action does not maintain any viable cause of action seeking dissolution.
Turning to the substantive arguments against dissolution, to obtain dissolution, the petitioner must establish that "(1) the management of the entity is unable or unwilling to reasonably permit or promote the stated purpose of the entity to be realized or achieved, or (2) continuing the entity is financially unfeasible "(Long Island Medical & Gastroenterology Associates ICC. v. Mocha Realty Associates LLC., 191 A.D.3d 857, 143 N.Y.S.2d 56 [2d Dept., 2021]). Concerning disagreements, among the members "it is only where discord and disputes by and among the members are shown to be inimical to achieving the purpose of the LLC will dissolution under the "not reasonably practicable" standard imposed by LLC §702 be considered by the court to be an available remedy to the petitioner" (Kassab v. Kasab, 60 Misc.3d 1204(A), 109 N.Y.S.2d 832 [Supreme Court Queens County 2018]).
Thus, the respondent has presented an operating agreement dated January 10, 2020 executed by the parties. The petitioner has presented a much more extensive operating agreement which, other than the notation it was executed in 2019, is undated. Notwithstanding the question of which operating agreement, if any, is authentic and which provisions govern, there is no substantive opposition to the facts presented seeking dissolution. The only opposition filed is a request to stay dissolution so. that other avenues of dividing the .assets between the patties can be explored. Thus, the operating agreement presented by petitioner states that "the Company is formed for the object and purpose of, and the nature of the business to be conducted, and promoted by the Company the ownership, operation, development, purchasing, mortgaging, selling, managing and leasing, of, and otherwise, dealing with, certain teal property located at 400 Gran-it Road, Borne Road and 395 Granite Road, Kerhonkson, NY 12446 (collectively the "Property")" (see. Operating Agreement, ¶ 1.2 [NYSCEF Doc. No. 3]). The operating agreement presented by the- respondent states that "the purpose of' the Company shall be to own, develop, manage, operate, improve, finance, refinance market, sell and otherwise deal with and dispose of the Premises" (see, Operating Agreement, ¶ 4 [NYSCEF Doc. No. 29]). Thus, both parties agree the purpose of the corporation is to manage and deal in -all -ways with the subject property,. While the particular provisions permitting dissolution may differ (see, NYSCEF Doc. No. 3, ¶ 8.1 "The Company shall dissolve and commence winding up and liquidating upon the first to occur of the decision of the. Consent Member or any event requiring the dissolution of the: Company under Article 701 of the Act" and NYSCEF Doc. No. 29, ¶ 3 "The term of the Company has commenced as of the date of its formation and the Company shall be dissolved and its affairs wound up as upon the first to occur of the following: (a) written consent of the Members,, (b) the death, retirement, resignation, expulsion, bankruptcy or dissolution of a Member or the occurrence of any other event that terminates the continued membership of a member in the Company, unless the business of the Company is continued by the consent of all remaining members, of the Company within 180 days following the occurrence of any such event, or (c) the entry of a decree of judicial dissolution of the Company under New York laws") there is no disagreement regarding the goal of the corporation. The respondent argues the petitioner has not satisfied any of the reasons to trigger such dissolution pursuant to Article 3 of the operating agreement it presented. However, an overarching basis of the dissolution, of any limited liability company is "whenever it is not reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement" (see, LLCL §702). Thus, the reasons stated in the respondent's operating agreement serve only to expand the availability of dissolution, not to curtail such availability.
There really is no basis to argue it is reasonably practicable for the parties to continue this corporation together. First, the petitioner and respondent cannot work together they do not trust each other and have leveled allegations against each other which undermine the effective governance of the corporation. The respondent argues that "disputes amongst members of an LLC (including the disputes set forth by Petitioner) are insufficient to support dissolution" (see, Memorandum of Law, page 19 [NYSCEF Doc. No. 34]). However, the disagreements between the parties are far deeper than mere oppression (see, Lazar v. Attena LLC, 2020 WL 5439258 [Supreme Court New York County 2020]). Indeed, in the prior action the respondent has submitted numerous affidavits detailing the allegations against petitioner and her husband. For example, in an affidavit dated July 15, 2021 the respondent stated that "the Vashovskys lie to everyone about everything-bank statements, mortgage holders, investors, employees, guests-EVERYONE. As this case proceeds, the' Court will quickly ascertain just how corrupt the Vashovskys are" (see, Affidavit of Yoseph Zablocki, ¶ 7 [NYSCEF Doc. No. 45]). The remainder of the affidavit is a list of alleged, lies, frauds and improprieties committed, by Ephraim Vashovsky which according to Zablocki total over 7 5 lies (see, id., at ¶ 87). Again, Zablocki submitted a 67 page, affidavit dated February 23, 2022 [NYSCEF Doc. No. 111] where he recounts many of the allegations of his earlier affidavit and painstakingly details- all the allegations of fraud committed by Vashovsky. The allegations are too detailed and too numerous to recount, however, they are far more disruptive than mere disagreement where the corporation can still carry out its intended purpose. As the court observed in In re 47th Road LLC, 54 Misc.3d 1217(A), 54 N.Y.S.3d 610 [Supreme Court Queens County 2017] "it is only where discord, and disputes by and among the members are shown to be inimical to achieving the purpose of the LLC will dissolution under the "not reasonably practicable" standard imposed by LLCL § 702 be considered by the court to bean available remedy to the petitioner" (id). The petitioner has sufficiently satisfied this standard.
Second, currently the hotel is a losing venture requiring infusions of significant sums of money each month demonstrating the corporation is financially unfeasible (Doyle v. Icon LLC, 103 A.D.3d 440, 959 N.Y.S.2d 200 [1st Dept., 2013]). There is no merit to the argument that a receiver appointed to conduct the operations of the hotel is "a tacit acknowledgement that this business can continue to operate"' (see, Memorandum of Law, page 16 [NYSCEF Doc. No. 34]). A receiver was appointed precisely because the parties could not function or work together and the appointment was. a way in which a third party could conduct the hotel's business while the lawsuit proceeded. That does not mean the hotel can continue to operate for the foreseeable future. Indeed, the passage of time and the numerous reports issued by the receiver has demonstrated the financial unfeasibility of continuing the. operate, the ho id.
Therefore, based on the foregoing the petition seeking dissolution is granted. The cross-motion seeking consolidation is consequently denied.
So ordered.