Opinion
Index No. 512169/2022 Motion Seq. No. 10 NYSCEF Doc. No. 250
01-02-2024
LOUANN LARSEN, as Trustee of the LARSEN 2021 FAMILY TRUST, SUBTRUST A, and the LARSEN 2021 FAMILY TRUST, SUBTRUST C, KATERINA VOUMVOURAKIS, as Trustee of the LARSEN 2021 FAMILY TRUST, SUBTRUST A, and the LARSEN 2021 FAMILY TRUST, SUBTRUST B, and LYDIA LARSEN, as Trustee of the LARSEN 2021 FAMILY TRUST, SUBTRUST B, and the LARSEN 2021 FAMILY TRUST, SUBTRUST C, as trustees and derivatively on behalf of POWER COOLING, INC., and RELIANCE MACHINING, INC., Plaintiffs, v. LAUREN LARSEN, Defendant, and POWER COOLING, INC., and RELIANCE MACHINING, INC., Nominal Defendants,
Unpublished Opinion
HON. LEON RUCHELSMAN, JSC
The plaintiffs, have moved pursuant to CPLR §3211 seeking to dismiss counterclaims filed by the Lauren Larsen. The defendants have opposed the motion. Papers were submitted by the parties and after reviewing all the arguments this court now makes the following determination.
According to the complaint, the nominal defendant corporations,, which are engaged in cooling and heating services were owned by Lloyd Larsen. On December 1, 2002 Lloyd placed 51% of the shares of common stock of the corporations into a trust and his daughter Lauren, the defendant herein, was named as trustee along with a non-party-. Further, Lloyd and his wife and Lauren executed an agreement wherein they were the only shareholders with voting rights. Lloyd passed away in 2011 and Lauren was gifted 29% of the company and purchased another 20% from her mother, leaving her with 49% of the company. In 2021 the 2002 Trust was reformed into a new trust with three subdivisions, two (Subtrusts A and B) maintaining 19.40% each and Subtrust C maintaining 9.4%. The .2002 trust- still maintained 2.75%. The trustees, of Subtrusts A, B and C are Lloyd's other three children, the plaintiffs herein, Louann, Lydia and non-party Linnea and other non-parties.
Lauren Larsen has now filed counterclaims for fraudulent inducement, breach of a fiduciary duty, breach, of contract, rescission, unjust enrichment and a constructive trust. Specifically, she alleges that, essentially, Louann and Lydia, devised a scheme whereby their share, of the trust would be increased and they misrepresented to Lauren various facts which induced her to agree to decant the trust and create new trusts as noted. The plaintiffs have now moved, seeking to dismiss the counterclaims arguing they have no merit. The motion is opposed.
The first counterclaim alleges fraudulent inducement. To state a Claim, for fraudulent misrepresentation the plaintiff must establish a misrepresentation of fact that was false when made for the purpose of inducing another to rely upon it and they justifiably relied upon it to their detriment (Mandarin Trading Ltd.., v. Wildenstein, 16 N.Y.3d 173, 919 N.Y.S.2d 465 [2011]) . Thus, the misrepresentation must concern a present fact, not a future promise (see, Scialdone v. Stepping Stones Associates L.P., 148 A.D.3d 953, 50 N.Y.S.2d 413 [2d Dept., 2017]). Therefore, misrepresentations made before the formation of a contract which induce a party to enter into the contract can support claims for fraudulent misrepresentation (Cohen v. Koenig, 25 F.3d 1168 [2d Cir. 1994]).
The counterclaim lists eleven specific misrepresentations that induced Lauren to decant the trusts. A review of them reveals they do not in any way support any claim for fraudulent inducement. The first misrepresentation asserts that Lauren's daughters may remain employed by the company but that their salaries could not exceed $150,000 (see, Proposed Second Amended Verified Answer, ¶117 [NYSCEF Doc. No. 204]). That, is not a misrepresentation of any present fact.
The second misrepresentation asserts that there is an acknowledgment that Lauren was the beneficiary of an insurance policy covering the life of their mother Louise Larsen Again, that does not describe any misrepresentation of any present fact.
The third misrepresentation asserts that Lauren would retain 100% control over the companies. Likewise, that does not allege any misrepresentation at all.
The fourth misrepresentation asserts that the board of directors could take action without formal board meetings. That is not a misrepresentation of a present fact.
The fifth misrepresentation asserts that "distributions to the shareholders were required [only] so that the sisters would not have substantial tax liability without the funds to pay it and that Lauren on behalf of the company should use commercially reasonable efforts to retain Sufficient cash to make income tax distributions" (see, Proposed Second Amended Verified Answer, 51117 [NYSCEF Doc. No. 204]) . Again, that is not a misrepresentation of a present fact.
The sixth misrepresentation asserts "there were unwritten leases and that it was in the best interest of the corporations that no tenant have an extended right of occupancy as that would "greatly depreciate" the value of the real property" (see, Proposed Second Amended Verified Answer, Sill7 [NYSCEF Doc. No. 204]. That is not a misrepresentation of a present fact.
The seventh misrepresentation asserts that Louann and Lydia would never have the power to force: Lauren to sell the company. That is not a misrepresentation of a present fact.
The eighth misrepresentation asserts that at all times Lauren had 100% control of the business.. That is not a misrepresentation of a present fact.
The ninth and tenth misrepresentations assert that the foregoing would be legally binding and the new trust agreements would promote family harmony. Again, those are not misrepresentations of any present fact.
None of the alleged misrepresentations concern any actual misrepresentations of any present facts. They are either general statements or assertions about the future. They do not support fraud at all. Therefore, the motion seeking to dismiss the first counterclaim is granted.
Next, concerning the claim for breach of contract, it is well settled that to succeed upon a claim of breach of contract the plaintiff must establish the existence of a contract, the plaintiff's performance, the defendant's breach and resulting damages (Harris v. Seward Park Housing Corp,, 79 A.D.3d 425, 913 N.Y.S.2d 161 [1st Dept ., 2010]), Further, as explained in Gianelli v. RE/MAX of New York, 144 A.D.3d 861, 41 N.Y.S.3d 273 [2d Dept., 2016], "a breach of contract cause of action fails as a matter of law in the absence of any showing that a specific provision of the contract was breached" (id). First, Lauren has not presented any provision of the trust agreement that Louann or Lydia breached. Moreover, the crux of this counterclaim is that Lydia and Louann have initiated this lawsuit seeking to oust Lauren from her position running the company and to seek a sale of the company. However, even if a provision of the contract guaranteed Lauren's management for the "foreseeable future" (see, Proposed Second Amended Verified Answer, ¶197 [NYSCEF Doc. No. 204]) surely allegations Lauren engaged in wrongdoing would not violate that guaranty. The counterclaim characterizes this lawsuit as the "utmost in bad faith" (see, Proposed Second Amended Verified Answer, ¶201 [NYSCEF Doc. No.,204]). There has been no evidence presented this lawsuit was filed in bad faith to enable the assertion of breach of contract causes of action. Therefore, the motion seeking to dismiss the breach of contract counterclaim is granted. Likewise, there is no viable allegation Lydia or Louann breached any fiduciary duty to Lauren. Consequently, the motion seeking to dismiss that counterclaim is granted.
The next counterclaim seeks rescission. "As a general rule, rescission of a contract is permitted 'for such a breach as substantially defeats its purpose. It is not permitted for a slight, casual, or technical breach, but ... only for such as are material and willful, or, if not willful, so substantial and fundamental as to strongly tend to defeat the object of the parties in making the contract'" (Kassab v. Kasab, 137 A.D.3d 1138, 27 N.Y.S.3d 680 [2d Dept., 2016]). Since there can be no breach of contract the counterclaim for rescission is likewise improper. Thus, the motion seeking to dismiss, this counterclaim is granted.
The next counterclaim is for unjust enrichment. The elements of a cause of action to recover for unjust enrichment are that "(1) the defendant was enriched, (2) at the plaintiff's expense, and (3) that it is against equity and good conscience to permit the defendant to retain what is sought to be recovered" (see, GFRE, Inc., v. U.S. Bank, N.A., 130 A.D.3d 569, 13 N.Y.S.3d 452 [2d Dept., 2015]). Thus, "the essential inquiry in any action for unjust enrichment or restitution is whether it is against equity and good conscience to permit the defendant to retain what is sought to be recovered" (see, Paramount Film Distributing Corp., 30 N.Y.2d 415, 344 N.Y.S.2d 388 [1972]). However, a claim of unjust enrichment is not available when it duplicates or replaces a conventional contract or tort claim (see, Corsello v. Verizon New York Inc., 18 N.Y.3d 777, 944 N.Y.S.2d 732 [2012]). As the court noted "unjust enrichment is not a catchall cause of action to be used when others fail" (id). Therefore, since a valid contract exists between the parties a claim for unjust enrichment is not proper. Consequently, the motion seeking to dismiss this counterclaim is granted.
The last counterclaim seeks a constructive trust. A constructive trust may be imposed when property has been acquired under such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest therein (Plumitallo v. Hudson Atl. Land Co., 74 A.D.3d 1038, 903 N.Y.S.2d 127 [2d Dept., 2010]). To the extent these allegations are individual in nature, there was no fiduciary relationship nor any promise made between the defendant individually and the plaintiffs. Therefore, the defendant cannot establish any constructive trust. Consequently, the motion seeking to dismiss, all the. .counterclaims is granted.