Opinion
6508/05.
Decided April 17, 2008.
Counsel for plaintiffs: Ursula A. Gangemi, Brooklyn, New York.
Counsel for defendant: Sol Mermelstein, Brooklyn, New York.
Upon the foregoing papers, defendant Joseph P. Grancio (Mr. Grancio or defendant) moves, pursuant to CPLR 3212, for summary judgment dismissing the action on the ground that any claims regarding loans made by 1432 Corporation are barred by the statute of limitations, that pursuant to CPLR 3211(a)(3), plaintiff John F. Gangemi (Mr. Gangemi) lacks legal capacity to bring this action, and that "plaintiff has failed to state a cause of action." Mr. Gangemi, individually and on behalf of 1432 86th Street Realty Corp. cross-moves, pursuant to CPLR 3025(b), for leave to serve an amended complaint.
Facts and Procedural History
This is a shareholder's derivative action alleging breach of fiduciary duty which is, in effect, an outgrowth of a protracted mortgage foreclosure action. Briefly stated, in October, 2000, Ronald D'Angelo commenced an action to foreclose the mortgage (the mortgage foreclosure action) held by him on real property consisting of a two-story commercial building, which was owned by 1432 Corp., the mortgagor. Mr. Gangemi, Mr. Grancio and Dominick Gangemi (Mr. Gangemi's brother) were the principals and officers of 1432 Corp., and Mr. Gangemi and Mr. Grancio had personally guaranteed the payment of the mortgage (the mortgage loan).
In August, 2002, the court granted Mr. Grancio's motion requesting the appointment of a temporary receiver for 1432 Corp. Mr. Grancio then moved for a default judgment against both Dominick Gangemi and Mr. Gangemi. In response, Mr. D'Angelo cross-moved for, among other things, summary judgment on his mortgage foreclosure cause of action.
By decision and order dated August 11, 2003, Mr. D'Angelo's cross motion for summary judgment was granted. Relief sought by the other parties was also addressed. Subsequently, additional motions were brought by the parties, including applications for use and occupancy (with respect to the Law Offices of Ursula A. Gangemi, P.C.), and for removal of the receiver.
Thereafter, in 2004, Mr. Gangemi asserts that the parties to the foreclosure action entered into a settlement agreement whereby Mr. D'Angelo agreed to accept $425,000.00 in full payment of the mortgage debt. The sum was substantially less than the amount due and owing at that time. A court conference was scheduled for October 27, 2004, at which time the terms of the settlement were to be placed on the record. Mr. Grancio and his attorney were notified of the date and time of the conference but the transcript of these proceedings indicates that they did not appear. Nevertheless, counsel for Mr. D'Angelo recited the provisions of the settlement, and the court added to counsel's recitation that all parties were releasing Mr. Grancio. In response, Mr. D'Angleo and his counsel replied that Mr. Grancio was transferring his stock to the corporation and waiving any and all claims that he had against the other parties.
According to Mr. Gangemi, the settlement payment was to be funded by a new mortgage loan secured by the property. Mr. Gangemi states that Mr. Grancio's consent to this loan would have been required because of the unanimity provision of 1432 Corp.'s shareholder's agreement. Mr. Grancio refused to give such consent, but as an alternative agreed, as part of the settlement, to relinquish his stock in 1432 Corp. to the corporation. However, Mr. Grancio purportedly breached the agreement by refusing to turn over the stock unless he was paid $75,000.00. He said that because neither he nor his attorney were present when the settlement was placed on the record, he was not bound by its terms.
The verified complaint alleges that simultaneously with Mr. Grancio's refusal to cooperate with the corporation, and without Mr. Gangemi's knowledge, Mr. Grancio entered into a Letter of Intent with Mr. D'Angelo for Mr. D'Angelo to sell his mortgage to Mr. Grancio, or his nominee, for the sum of $425,000.00 to the exclusion of the corporation and any other party. By the terms of the Letter of Intent, Mr. Grancio, or his nominee, had been given the exclusive right by Mr. D'Angelo to purchase the first mortgage for the same $425,000.00 by March 10, 2005. The agreement also called for Mr. D'Angelo to "stall" a hearing in the above-noted foreclosure action, which hearing was to determine the claim of the corporation, Mr. Gangemi and Mr. Grancio against Mr. D'Angelo for his damage to the corporate asset.
Mr. Gangemi asserts that as a consequence of Mr. Grancio's refusal to consummate the settlement, the foreclosure action continued; 1432 Corp. continued to incur legal fees in defense thereof in excess of $50,000.00 to date; that interest continued to accrue, amounting to approximately $133,000.00 from the date of Mr. Grancio's renunciation of the settlement; and that the loss of the property through foreclosure is a real threat.
Based upon the foregoing, Mr. Gangemi commenced the instant shareholder's derivative action in June, 2005. The verified complaint alleges the facts set forth above, as well as asserting that from the inception of 1432 Corp., Mr. Gangemi has: 1) paid all the debts and expenses thereof, in excess of $150,000.00 without any contribution from Mr. Grancio, which is owed to him from the corporation and/or Mr. Grancio; 2) paid real estate taxes without any financial assistance from Mr. Grancio; 3) in September 2001, entered into a tax forbearance agreement on behalf of 1432 Corp., and personally guaranteed same, to prevent a tax foreclosure; 4) in May, 2002, filed the necessary documents, paid the necessary expenses and reinstated the corporation from its then defunct status; and 5) that in 1988, Mr. Gangemi and Mr. Grancio each borrowed $27,400.00 from 1432 Corp. out the proceeds of a mortgage refinancing, and that Mr. Gangemi repaid the loan, but Mr. Grancio did not.
The verified complaint further alleges that Mr. Grancio's actions in reneging on the settlement agreement in the foreclosure action "were intended to defraud and harm the corporation and Gangemi and place both the corporation and Gangemi in a financially detrimental position;" that Mr. Grancio violated his fiduciary obligations owed to 1432 Corp. and Mr. Gangemi, in return for personal benefits; that Mr. Gangemi has wasted and converted the assets of 1432 Corp.; and that by virtue of the foregoing, 1432 Corp. and its shareholders have been damaged and Mr. Gangemi has derived substantial benefits. The complaint seeks, among other things, an accounting from Mr. Grancio; payment by Mr. Grancio to 1432 Corp. and Mr. Gangemi of compensatory and punitive damages; and an injunction enjoining Mr. Gangemi from wasting corporate assets.
In contrast, while the proposed amended verified complaint alleges most of the facts set forth in the verified complaint, the first cause of action alleges that by virtue of his status as an officer of 1432 Corp., and his status as a shareholder with veto power under the unanimity provision of the agreement among 1432 Corp.'s shareholders, Mr. Grancio owed a fiduciary duty to 1432 Corp, and that by sabotaging the agreement to settle Mr. D'Angelo's foreclosure action, Mr. Grancio breached his fiduciary duty to 1432 Corp., which caused it injury. The second cause of action alleges that Mr. Grancio's refusal to proceed to relinquish his shares in exchange for releases constituted an anticipatory breach to settle the foreclosure action, which also injured 1432 Corp.
Thus, Mr. Gangemi withdrew his claims based upon his contributions to 1432 Corp., set forth a breach of fiduciary duty claim as a separate cause of action, and added a distinct claim for breach of contract.
Before discovery was commenced, Mr. Grancio made the instant motion to dismiss, and Mr. Gangemi cross-moved to amend the complaint.
Arguments
In support of his motion to dismiss, Mr. Grancio asserts, as relevant here, that Mr. Gangemi's allegation that he made loans to 1432 Corp., which purportedly became Mr. Grancio's obligation to pay, whether to 1432 Corp. or to Mr. Gangemi, is without merit. In this regard, Mr. Grancio argues that any loan made to the corporation would be a corporate debt owed by the corporation and payable by it; that there is no evidence that the corporation agreed to borrow money from Mr. Gangemi; and that Mr. Gangemi has not submitted any proof of any debts owed by the corporation to him. Further, Mr. Grancio argues that the loan allegedly made to him by the corporation was made in 1988, and thus the claim against him for the alleged failure repay the loan is time-barred.
Mr. Grancio also argues that Mr. Gangemi lacks capacity to sue because a receiver was appointed in the foreclosure action and because of the requirement in the shareholder's agreement of unanimous shareholder consent for action by the corporation. However, in his papers submitted in opposition to the cross motion, which also serve as his reply papers, Mr. Grancio has abandoned these two arguments.
This allegation is made in paragraph 11 of the verified complaint. It states that "[f]rom the inception of the formation of the corporation, Gangemi has paid all debts and expenses of the corporation, without any contribution from Grancio, in excess of $150,000.00. This amount, in excess of $150,000.00 is a loan to 1432 [Corp.] from Gangemi, which amount is due and owing to Gangemi from the corporation and/or Grancio.
Mr. Grancio also argues that Mr. Gangemi has failed to submit proof in admissible form establishing how he is responsible for the loans. In addition, Mr. Grancio contends that if the corporation recovers on the claim alleged in the complaint, Mr. Gangemi is not entitled to a double recovery for the same alleged losses.
In opposition to Mr. Grancio's motion to dismiss, and in support of his cross motion to amend, Mr. Gangemi first notes that he has withdrawn any claim against Mr. Grancio for recovery of the money he (Mr. Gangemi) contributed to the corporation. Thus, Mr. Grancio's argument that these claims are time-barred has been rendered moot.
Further, as relevant here, Mr. Gangemi asserts that Mr. Grancio breached his fiduciary duty to 1432 Corp. by frustrating the settlement agreement, and that Mr. Grancio is liable for the damages which resulted, including thousands of dollars in attorney's fees and interest which the corporation must pay, and a judgment that will lead to the loss of the corporation's sole asset.
Mr. Gangemi disputes Mr. Grancio's claim that he has no standing because a receiver for the corporation was appointed, as well as Mr. Grancio's argument that Mr. Gangemi is precluded from bringing this action on behalf of the corporation because the shareholder's agreement requires a unanimous vote of shareholders and directors in order for the corporation to act.
As to that branch of his motion to amend the complaint, Mr. Gangemi reiterates that the claims based upon his contributions to the corporation have been withdrawn, and further asserts that the breach of fiduciary duty claim has been set forth as a separate cause of action, and that a distinct claim for breach of contract has been added.
In reply, as an initial matter, counsel for Mr. Grancio argues that since Mr. Gangemi has conceded that he has no cause of action against Mr. Grancio under the original complaint, that complaint should be dismissed on the merits with prejudice so that Mr. Gangemi may not reallege them in another complaint.
Further, while counsel does not oppose the cross motion to amend, he contends that the complaint, as amended, must be dismissed. In this regard, counsel asserts that the only remaining claim is contained in the amended complaint "wherein Mr. Gangemi in the guise of a shareholders derivative action is attempting to get 100% of the shares of the stock of the corporation." Specifically, counsel states that Mr. Gangemi is not, as he claims, a 2/3 shareholder in the corporation, but that Mr. Grancio, Mr. Gangemi, and Dominick Gangemi are 1/3 shareholders, or that Mr. Grancio and Mr. John Gangemi each own ½ of the shares. Further, counsel notes that under CPLR 2104, the stipulation cannot be enforced as "made between counsel in open court" nor is there a writing subscribed by Mr. Grancio binding him to the agreement. According to counsel, since the record reveals, and Mr. Grancio affirms in his own affidavit, that he was not at the hearing during which a settlement was placed on the record, and since Mr. Grancio further affirms that he did not agree to this settlement, counsel asserts that the causes of action alleged in Mr. Gangemi's amended complaint must be dismissed.
CPLR 2104 provides that "[a]n agreement between parties or their attorneys relating to any matter in an action, other than one made between counsel in open court, is not binding upon a party unless it is in a writing subscribed by him or his attorney or reduced to the form of an order and entered. With respect to stipulations of settlement and notwithstanding the form of the stipulation of settlement, the terms of such stipulation shall be filed by the defendant with the county clerk."
In reply, counsel for Mr. Gangemi argues that Mr. Grancio's contentions regarding the lack of a settlement agreement and the distribution of shares do not warrant dismissal of the original complaint or rejection of the proposed amended complaint. In this regard, counsel asserts that Mr. Gangemi's allegation that Mr. Grancio deliberately frustrated a settlement of the foreclosure action which would have benefitted 1432 Corp. is not dependent on whether a settlement he initially agreed to could be enforced against him in accordance with CPLR 2104; that his denial that he agreed to the settlement merely raises an issue of fact which cannot be resolved without discovery; that the distribution of shares is irrelevant to the merits of the breach of fiduciary duty claim; and that any question regarding the number of shares each shareholder owns must be established through discovery.
With respect to the breach of contract cause of action, counsel notes that plaintiff alleges in the proposed amended complaint that before the other parties appeared in court, "Grancio, through his attorney, had advised the Court of his agreement to the settlement.'" Counsel argues that since Mr. Grancio acknowledged his agreement to the court, and since it is memorialized in an official court record, the settlement is presumptively binding upon Mr. Grancio pursuant to CPLR 2104, and that at minimum, Mr. Gangemi is entitled to discovery on the issue before dismissal of this cause of action is considered.
Analysis
Inasmuch as Mr. Gangemi has withdrawn his claim against Mr. Grancio for recovery of funds he (Mr. Gangemi) loaned to 1432 Corp., and since Mr. Grancio has abandoned his claims that the complaint must be dismissed based upon Mr. Gangemi's lack of capacity to sue and that the claims for repayment on loans made by Mr. Gangemi are time-barred, the only remaining issues to be determined are whether the causes of action alleged in the amended complaint are legally sufficient to state a claim and whether the cross motion to amend should be granted.
Mr. Grancio has framed his motion as one to dismiss based upon legal sufficiency, as opposed to one for summary judgment.
"In considering a motion to dismiss pursuant to CPLR 3211(a)(7), the court should "accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory" ( Aberbach v Biomedical Tissue Servs. , 48 AD3d 716 , quoting Leon v Martinez, 84 NY2d 83, 87-88). "Whether the plaintiff can ultimately establish the allegations is not part of the calculus'" ( id., quoting EBC I, Inc. v Goldman, Sachs Co. , 5 NY3d 11 , 19).
Here, the proposed amended complaint sufficiently sets forth causes of action for breach of fiduciary duty and anticipatory breach of contract. With respect to the former cause of action, "[i]n order to establish a breach of fiduciary duty, a plaintiff must prove the existence of a fiduciary relationship, misconduct by the defendant, and damages that were directly caused by the defendant's misconduct" ( Kurtzman v Bergstol , 40 AD3d 588). The amended complaint alleges that by virtue of his status as an officer of 1432 Corp., and his status as shareholder with veto power under the unanimity provision of the agreement among 1432 Corp.'s shareholders, Mr. Grancio owed a fiduciary duty to 1432 Corp. ( see Sager Spuck Statewide Supply Co. v Meyer, 273 AD2d 745 [a shareholder and director of a close corporation has a fiduciary duty to the shareholders]), and that Mr. Grancio sabotaged the agreement to settle the foreclosure action, which breached his fiduciary duty and caused the corporation damages. These allegations are sufficient to state a cause of action for breach of fiduciary duty. Further, as Mr. Gangemi notes, this claim is not dependent upon whether the settlement could be enforced against him pursuant to CPLR 2104. Rather, the issue is whether Mr. Grancio acted in a manner which breached his fiduciary duty to the corporation and whether that breach caused the corporation injury.
Mr Gangemi asserts in his affidavit that 1432 Corp. is a close corporation, which Mr. Grancio does not dispute.
The second cause of action sufficiently sets forth a claim for anticipatory breach of contract. "[U]nder the doctrine of anticipatory breach . . . if one party to a contract repudiates his duties thereunder prior to the time designated for performance and before he has received all of the consideration due him thereunder, such repudiation entitles the nonrepudiating party to claim damages for total breach" ( Long Island R. R. Co. v Northville Industries Corp., 41 NY2d 455, 463). "The doctrine of anticipatory breach has not generally been applied to all types of contracts, its application being limited ordinarily to bilateral contracts embodying some mutual and interdependent conditions and obligations" ( id). Stated otherwise, "[f]or the doctrine to apply there must be some dependency of performances' ( id. at 464).
Here, Mr. Grancio argues that he is not bound by the settlement agreement since neither he nor his attorney were in court when the agreement to settle the foreclosure action was placed on the record. However, the amended complaint alleges that before all the parties appeared in court for the settlement hearing, "Grancio, through his attorney, had advised the Court of his agreement to the settlement." The amended complaint also alleges that Mr. Grancio entered into the settlement agreement whereby Mr. D'Angelo agreed to accept $425,000.00 as full and complete satisfaction of the corporate debt owed to him on 1432 Corp.'s mortgage; that in consideration of same, Mr. Grancio and all other parties were to sign releases of all claims against each other; that the $425,000.00 settlement payment was to be funded by a new mortgage loan secured by the property, which required the consent of all shareholders; that Mr. Grancio refused to give his consent to the loan, but as an alternative, as part of the settlement, he agreed to relinquish his stock in 1432 Corp. to the corporation; and that Mr. Grancio repudiated the settlement by refusing to relinquish his shares.
Paragraph 25 of the amended complaint.
Further, the amended complaint sets forth a bilateral contract between the parties, namely where each party to the settlement agreement promised some performance. In light of the foregoing, and since the complaint alleges that Mr. Grancio repudiated his duties under the settlement agreement before the time designated for performance, and before he received consideration due him thereunder, the amended complaint sufficiently states a claim for anticipatory breach of contract on behalf of the corporation.
Based upon the foregoing, and in view of the fact that leave to amend a pleading should be freely granted absent a showing of prejudice or surprise to the opposing party ( Nassi v Joseph DiLemme Constr. Corp., 250 AD2d 658, 659-660), neither of which have been demonstrated here, the motion of Mr. Grancio to dismiss is denied, and the cross motion of Mr. Gangemi to amend the complaint is granted. Accordingly, Mr. Grancio's request that the court dismiss the verified complaint is denied as moot.
This constitutes the decision and order of the court.