Opinion
INDEX NO. 607498/2017
09-11-2019
HOWARD LEVINE, individually and as shareholder of BROTHERS THREE INC. Plaintiff, v. ROSEMARIE A. COHEN, individually and as Ancillary Executor of the Estate of RICHARD O. COHEN, Defendant.
NYSCEF DOC. NO. 189 SHORT FORM ORDER
Present: HON. TIMOTHY S. DRISCOLL Justice Supreme Court Motion Seq. No. 3
Submission Date: 7/16/19
Papers Read on these Motions:
Affirmation in Support with Exhibits..............................................................................x
Affidavits in Support with Exhibits.................................................................................x
Memorandum of Law in Support....................................................................................x
Affidavits and Affirmation in Opposition with Exhibits...............................................x
Memorandum of Law in Opposition...............................................................................x
Reply Affidavit and Affirmation with Exhibits..............................................................x
Reply Memorandum of Law.............................................................................................x
This matter is before the Court on plaintiff Howard Levine's ("Plaintiff" or "Levine") motion for summary judgment. For the following reasons, Plaintiff's motion is denied.
FACTUAL BACKGROUND
A. Relief Sought
Plaintiff moves for summary judgment, pursuant to CPLR § 3212, on his first and second causes of action, and dismissing the accounting counterclaim of defendant Rosemarie Cohen ("Defendant" or "Cohen") in its entirety. Defendant opposes Plaintiff's motion.
B. The Parties' History
The Verified Complaint, see Lewis Affm. at Exh. 1, alleges as follows:
Levine was and is a shareholder in the pool supply and sales company Brothers Three, Inc. ("Company" or "Brothers Three"), which maintains its principal corporate office in Bethpage, New York. Cohen is the Ancillary Executor of the Estate of Richard O. Cohen ("Dick"), her late husband, who passed away on or about August 10, 2014. Dick is a former shareholder of Brothers Three.
Brothers Three was founded in the 1960s by members of the Cohen family. Dick became the sole shareholder of the Company on or about November 9, 1978. Levine was hired by the Company in 1974 and became a full-time employee of the Company in 1977. By the early 1980s, Levine became the Company's top salesperson at its most profitable store, and on several occasions was tasked by Dick with "rescuing" unprofitable and declining stores throughout the Company.
In May 1996, Dick gave Levine ten shares of stock in the Company in recognition of his service. At a lunch meeting called by Dick in March 1998, Dick offered Levine equal partnership in the Company in recognition of his nearly twenty-five years with the Company. Cohen and Levine also committed to enter into a buyout agreement that would permit Levine to purchase Dick's interest in the Company for $290,000 upon Dick's retirement or death. Between 1998 and 2000, Dick asked Levine to physically relocate to underperforming stores within the Company to increase their productivity and deal with various employee management issues. Levine did so. In 2000, Levine relocated to the Bethpage location and Dick began to systematically transfer corporate administrative and management responsibilities to Levine in preparation for his eventual succession to full ownership of the Company.
On August 23, 2002, Dick engaged his attorney, Mark Nathanson ("Nathanson"), to prepare a purchase agreement. Pursuant to Nathanson's sworn testimony in Nassau County Surrogate Court Case No. 2015-383429/A ("Estate Discovery Proceeding"), he represented Dick and the Company only in preparing the buyout agreement, Dick had worked out all of the material terms of the agreement prior to his first meeting with Nathanson, and Levine had no role whatsoever in the preparation of the purchase agreement. On or about October 16, 2002, the buyout agreement prepared by Nathanson at Dick's direction ("2002 Agreement") was executed by Levine, Dick, Dick's son, David O. Cohen ("David"), and Richard Amatuci ("Amatucci"), a long-time Company employee and holder of two shares of non-voting stock. See Compl. at Exh. B. The 2002 Agreement set forth, inter alia, an agreement permitting Levine to purchase Dick's stock for 1) $95,160 payable in 260 weekly installments of $365, and 2) $195,000 in the form of a ten-year employment agreement for David, payable in weekly installments of $375. The terms and conditions of the 2002 Agreement for the purchase of Dick's stock were clear, unequivocal, binding, and enforceable. The purchase price contained in the 2002 Agreement reflected the then-current valuation of the Company as determined by Dick and conveyed to Nathanson, as well as Levine's contributions during his over twenty-five years with the Company. Pursuant to the 2002 Agreement, Levine's right to purchase Dick's shares was triggered by either 1) Dick's written notice of his intention to retire and sell, or 2) the appointment of an estate fiduciary following Dick's death. Additionally, pursuant to their agreement, in 2002, Levine became an equal partner with Dick. The Company's long-time accountant, David Frey ("Frey"), testified that Dick directed that Levine's 50% ownership of the Company be reflected in financial records and the tax returns of the Company from that point forward.
Over the next several years, Levine and Dick worked together on a daily basis, with the intention of Levine learning the management side of the business in preparation for Dick's eventual retirement. As a consequence of their beneficial working relationship, Dick, with Levine's support, repeatedly delayed his "full" retirement and continued his association with the Company for several years. Dick remained a shareholder and drew a salary while working as he wished on a part-time, semi-retired basis during the times of year that he did not reside in Florida. To assuage any concerns about his intention to honor the 2002 Agreement, on September 25, 2007, Dick initiated and executed, along with Levine and Amatucci, an Amendment to Agreement (the "2007 Amendment"), which was prepared by Nathanson at Dick's direction. See Compl. at Exh. D. The 2007 Amendment specifically references the 2002 Agreement, amending it to 1) make clear that Dick's death shall not only trigger the right to purchase, but itself "shall be deemed a notice of sale," 2) update certain addresses for notices, and 3) include a standard "assigns and successors" paragraph.
On October 22, 2010, Dick again reaffirmed his intention to honor the terms of the 2002 Agreement with the initiation and execution, with Levine, of the Addendum to Purchase Agreement dated October 2002 ("2010 Addendum"). See Compl. at Exh. E. The 2010 Addendum, which was initiated by Dick, did not truly modify the 2002 Agreement, but instead directed that the $95,160 apportioned in the 2002 Agreement as payment for Dick's interest (as opposed to the monies to be paid to David under the ten-year employment agreement) also be directed to David. On October 23, 2010, Dick executed a resignation of his position as director, and Levine executed a certification of a resolution of that same date electing him President and Secretary of the Company ("2010 Resolution and Resignation"). See Compl. at Exh. F. There can be no dispute that David's signatures on the 2002 Agreement, 2007 Amendment, 2010 Addendum, and 2010 Resolution and Resignation are authentic, as Rosemarie previously hired an expert who analyzed and confirmed their authenticity.
On or about May 5, 2012, Dick typed out a document entitled "Memo to David O. Cohen," which initiated the payments to David as set forth under the 2002 Agreement ("2012 Memo"). See Compl. at Exh. G. The 2012 Memo was transmitted to David and Rosemarie and was maintained in the Company's financial files in its ordinary course of business. The Company's bookkeeper, Pamela Stetzler ("Stetzler"), had regular access to the file in which the 2012 Memo was maintained, and was informed by Dick that its purpose was to initiate Levine's purchase of David's interest. Commencing on May 5, 2012, and continuing to this date, David has received and accepted, without objection, over 100 checks and/or payments from the Company under the 2002 Agreement.
Following his preparation of the 2012 Memo, Dick informed Frey that he had noticed the sale provision under the 2002 Agreement. At all points thereafter, Dick's interest was no longer reflected in the financial records or tax returns of the Company and from that point forward, Levine was listed as the sole owner of the Company in its financial records and tax returns. Thereafter, Dick's participation in the Company's day-to-day business sharply decreased, and he began to enter retirement. By 2013, Dick ceased taking his salary draw and ceased making charges to his corporate American Express card, which was notable because he had, to that point, routinely used the card several times each month, even while in semi-retirement.
Plaintiff asserts a claim for a declaratory judgment finding that the 2002 Agreement is valid and enforceable, and that Levine has substantially performed on its terms so as to become the sole shareholder in the Company. Plaintiff also asserts a claim for a permanent injunction enjoining Defendant from 1) interfering with the operations or management of the Company and its employees, 2) making statements to third-parties, including Company vendors, competitors, business associates, and/or employees that call into question the validity of the 2002 Agreement and/or Levine's ownership interest in the Company, and 3) removing or misappropriating Company property without payment.
Rosemarie's Verified Answer, Affirmative Defenses and Counterclaims, see Lewis Affm. at Exh. 2, alleges as follows:
On October 14, 2016, the Nassau County Surrogate Court issued ancillary letters to Rosemarie authorizing her to pursue the interests of Dick's Estate in New York. Shortly thereafter, Rosemarie commenced the Estate Discovery Proceeding to determine whether Dick's shares of the common stock in the Company was an asset of the Estate.
The Company was incorporated by Dick and his two brothers, William Cohen ("William") and Albert Cohen ("Albert"), under New York law in or about 1962. Rosemarie believes that as of 1970, each of the three brothers owned fifty shares of the Company's original 200 shares of stock. Prior to 1978, the Company redeemed William's shares of common stock, leaving Albert and Dick each with a fifty percent interest in the Company. In or about 1978, the Company redeemed the outstanding shares of Albert's stock, making Dick the sole shareholder of the Company with fifty shares of the Company's common stock. On or about January 3, 1979, Dick was elected by the Board of Directors to serve as both the President and Secretary of the Company.
During the mid-1970s, Levine was hired to work as an entry-level employee and climbed the corporate ladder to become a manager with administrative responsibilities. In May 1996, Dick rewarded Levine and Amatucci for their work on behalf of the Company by giving them a bonus in the form of shares of Dick's stock in the Company. In particular, Dick transferred ten of his fifty shares of Company stock to Levine and two of his shares to Amatucci.
On or about March 23, 1998, a meeting of the Company's Board of Directors was held, at which time 1) Dick was re-elected to serve as President, 2) Dick was elected to serve as Secretary, 3) Levine was elected to serve as Vice President, and 4) Rosemarie was elected to serve as Treasurer. These elections were memorialized in a Resolution dated March 23, 1998 ("1998 Resolution"). See Ans. at Exh. 2. Pursuant to the 1998 Resolution, Rosemarie is authorized to conduct any business with banks deemed necessary for the Company - including borrowing money on behalf of the Company - and is authorized to conduct business with any other organizations as required for the operation of the business. Rosemarie continues to hold the position of Company Treasurer and remains an officer of the Company and member of its Board of Directors.
The recital paragraphs of the 2002 Agreement identify Levine and Amatucci as "Buyers" and Dick as the "Seller" of his shares of Company stock, and states that the parties were purportedly entering into the 2002 Agreement because "(i) the Company desires to continue with David O. Cohen as an employee and (ii) the Company desires to redeem all of the shares of stock owned by [Dick]." Ans. ¶ 29. The 2002 Agreement states that "in consideration for One ($1) Dollar and other valuable consideration, the parties agree as follows," but does not specify who, if anyone, is required to pay the one dollar or provide other valuable consideration. Id. ¶ 30. Nevertheless, the 2002 Agreement provides that "[s]eller hereby agrees to sell to Purchaser and Purchaser hereby agrees to purchase from Seller all of the Seller's outstanding shares of stock in the [Company] at a price and terms as provided herein." Id. ¶ 32.
The 2002 Agreement contains contradictory provisions insofar as it 1) suggests that the Company intends to redeem Dick's shares of stock, and also suggests that Levine and Amatucci as "Purchasers" intend to buy Dick's shares of stock, and 2) provides that the Purchasers (Levine and Amatucci) would personally employ David and provide him with benefits, and also provides for the Company to employ David for a ten-year period pursuant to the terms of a contemplated employment agreement. The parties apparently recognized that the 2002 Agreement contained ambiguous terms requiring further negotiation because the 2002 Agreement contemplates the parties negotiating, drafting, and executing promissory notes, security agreements, UCC-1 statements, an employment agreement for David, general releases, stock powers endorsed in blank, and certain other documents (the "Required Documents"), all of which were intended to be placed in escrow. The 2002 Agreement is not a complete, legal, valid, and binding agreement without the negotiation and execution of the Required Documents.
Additionally, on or about January 8, 2016, a certified forensic examiner examined the 2002 Agreement and various other documents to determine the authenticity of Dick and David's signatures. The forensic examiner concluded that one author signed the Dick and David signatures on the 2002 Agreement. Rosemarie believes that David never signed the 2002 Agreement.
The 2002 Agreement provides that the agreement "may be amended or revoked only by a writing executed by all of the parties thereto," however, the 2007 Amendment does not include a signature block for David and was never executed by David. See Ans. ¶ 50. Further, the 2010 Addendum does not include a signature block for David or Amatucci, and David and Amatucci did not sign the 2010 Addendum. Thus, the 2007 Amendment and 2010 Addendum are not legal, binding, valid, or enforceable.
As of December 31, 2012, the Company was worth no less than $8,121,600, and Dick's thirty-eight shares of stock (which represent a 76% ownership interest) were worth no less than $6,172,416, plus a premium because Dick's shares represent a controlling interest in the Company. It has been common practice for the Company to employ Dick and Levine's family members in various positions within the Company. Levine's wife, son, daughter, and son-in-law are all employed by the Company and have been for many years prior to Dick's passing. At all relevant times during his lifetime, Dick, as the controlling shareholder, President, and Secretary of the Company, had the power and authority to cause the Company to hire and pay a salary to David. If Dick did, in fact, prepare the 2012 Memo, he did not need to cause the Company to hire David and pay him a salary in connection with any purported agreement to sell his shares of the Company to Levine, and the intention to link David's employment to a sale of Dick's shares would have or should have been specified in the unsigned, undated Memo. Thus, Levine has never personally paid for any of Dick's shares of stock in the Company and has not provided any consideration for his purported acquisition of Dick's controlling interest in the Company.
Assuming, arguendo, that the purpose of the 2002 Agreement was to redeem Dick's shares, the Company did not have legal authority to enter into the 2002 Agreement or any related agreements. The Company cannot redeem Dick's shares without the approval of the Board of Directors, and no meeting of the Board of Directors was convened for the purpose of seeking the Board's approval for the company to enter into the 2002 Agreement or any amendments to the agreement. Alternatively, if a meeting of the Board of Directors was called and a resolution passed approving the redemption or purchase of Dick's shares of stock, Rosemarie, as a member of the Board of Directors, was entitled to notice of that meeting and had a right to attend and cast a vote objecting to the proposed transaction. Rosemarie never received notice of any Board of Directors meeting in connection with the redemption of Dick's shares in the Company. Any Resolutions passed by the Board of Directors authorizing the Company to enter into the 2002 Agreement and any amendments or addendums thereto are not legal, valid, or binding. Additionally, any redemption of a shareholder's stock in a corporation must be made out of the Company's surplus, and the Company cannot legally redeem Dick's shares of stock in the Company by agreeing to hire Dick's son and pay him a salary over a ten-year period. Accordingly, the 2002 Agreement, 2007 Amendment, and 2010 Addendum are not legal, valid, binding, or enforceable agreements.
Rosemarie asserts a counterclaim for a declaratory judgment finding that 1) the 2002 Agreement, the 2007 Amendment, and the 2010 Addendum are not legal, valid, binding, or enforceable, and 2) compelling Levine to turn over control of the Company to Dick's Estate. Rosemarie also asserts a counterclaim for an accounting.
1. David O. Cohen Affidavits
In an affidavit sworn to on July 9, 2018 (the "First Affidavit"), David affirms that he worked for the Company during summers in high school and college between 1981 and 1988. After college, David worked for the Company on a full-time basis from 1989 to 1994 in a variety of positions and capacities. David ceased working for the Company after 1994, and does not know if he was ever a shareholder.
David's signature appears on page 14 of the 2002 Agreement. That signature was either signed by David, or was signed by Dick on his behalf and with David's consent. Dick handed David a copy of the 2012 Memo in 2012, and David maintained it in his personal files. David provided a copy of the 2012 Memo to his mother after his father passed away.
David has received and deposited the checks set forth in the 2012 Memo, and has received IRS Forms 1099 and W2 from the Company on an annual basis. David received checks from the Company for the "buyout" portion until April 30, 2017, and continues to receive checks for the "employment" portion, and expects those to continue through April 30, 2022. Dick set up the payment arrangement set forth in the 2012 Memo and handled all of the details of it and his business. David's understanding is that Dick put these payments in place as part of the buyout of his shares.
In his Second Affidavit, David affirms that his First Affidavit was prepared at the direction and instruction of Levine's attorney, and his Second Affidavit was prepared at the request of Rosemarie's attorney. David received a subpoena from Levine's attorney the prior year to appear at a deposition. David did not wish to attend, as he suffers from extreme anxiety and a terrible fear of flying. David was offered to forgo being summoned to New York for a deposition in exchange for an affidavit.
David's Second Affidavit states that it is sworn to on May 8, 2016. The Second Affidavit, however, references his First Affidavit dated July 9, 2018.
David received the First Affidavit, which was prepared by Plaintiff's counsel and contained much of the information explained to him on the phone. During that conversation, David was first told about a 2002 agreement and an issue regarding his signature. David did not know anything about a 2002 agreement and did not know that his name was signed on it. Whoever called and sent him the agreement to review made it appear that if David had not been the person who signed his name and the signature appeared to be his, then his father must have signed it on his behalf. David advised that Dick would never do that illegally and he said he would write that if he did, he did it with David's consent.
While Dick did hand David the Memo at some point, it was definitely after he was already receiving two check instead of the usual one for $500 per week he had received from the Company. This had been in place as long as he could remember, and then it was switched to two checks totaling an approximately $200 per week increase. David did not discuss these payments with Dick and just cashed the checks. When Dick gave David the Memo, he was at his home in Florida and Dick handed it to David out of nowhere and said "this is yours." Dick said nothing else about it, and David put it in his file and did not look at it again until after Dick passed away when Rosemarie asked if he had any of his father's papers. David never made a connection between the checks and the Memo. While his First Affidavit states that he received checks for the buyout portion and the employment portion, David had not heard that before the attorney told him on the telephone. David knew nothing about the agreement claimed to contain either his signature or a forged version of it, and did not know about Dick setting up the Memo or the supposed payment arrangement, except that he was told by the person who called him that this was fact and was asked to sign an affidavit regarding this as explained to him.
David now understand that the 2002 Agreement provides for him to receive a promissory note and installment payments purportedly owed to him to purchase Dick's stock, but he never received same. Dick has also now learned that he was to receive an employment contract which gave him benefits such as health insurance, but never received that contract. David was recently hospitalized with no health insurance and is waiting to obtain medicare.
2. Patrick Luongo Affidavit
In an affidavit sworn to on August 9, 2018, Patrick Luongo affirms that he is married to Beth Luongo (née Cohen) and his mother-in-law is Rosemarie and brother-in-law is David. Luongo has known Dick, Rosemarie, and David since approximately 1982. Luongo is also acquainted with Levine, who was a business associate of Dick's for many decades and Luongo would see on occasion over the years. Luongo received a Judicial Subpoena Ad Testificandum and Duces Tecum and affirms that he is not in possession of documents or materials responsive to the requests. Luongo has personal knowledge that David briefly worked for the Company after he graduated college and ceased doing so in the mid-1990s. After David left the Company, it was Luongo's understanding, based on conversations with Dick and other family members, that Levine was to succeed to Dick's interest in the Company,
3. Collin Sirico Affidavit
Collin Sirico affirms that he is the co-owner of Trojan Leisure Products, LLC, a swimming pool manufacturer located in Albany, New York that conducts business under the trade name Radiant Pools ("Radiant"). Sirico first became acquainted with the Company during the Atlantic City Pool show in 2011, when he met Levine. Levine was introduced to Sirico as the owner of the Company. Sirico intended to follow-up with Levine the following spring, but one of Radiant's other sales representatives spoke with Levine, and Levine told Radiant's National Sales Manager, Timothy McDonough, that he was not interested in their product at that time.
Sirico again met Levine in 2012 at the Atlantic City Pool show, and he indicated that he would once again consider their product. In March 2013, Mr. McDonough visited the Company's Bethpage store to meet with Levine and his staff. Following his visit to the Bethpage store, McDonough related to Sirico that he had met with Levine and Dick, the former owner of the Company. Over the past six years, Radiant's business relationship with the Company has grown, but at no point has there been any indication or documentation that anyone other than Levine was the owner of the Company. Sirico has never met or dealt with Dick in any capacity.
4. Timothy P. McDonough Affidavit
Timothy P. McDonough is the National Sales Manger for Radiant and has worked for Radiant since December 2005. McDonough first became acquainted with the Company during the Atlantic City Pool show in 2011, when he met Levine. Levine was introduced to McDonough as the owner of the Company. McDonough intended to follow-up with Levine, but his sales representative spoke with Levine, and Levine told McDonough that he was not interested in their product at that time. McDonough met Levine again in 2012 at the Atlantic City Pool show, and he indicated that he would once again consider Radiant's product.
In March 2013, McDonough visited the Company's Bethpage store to meet with Levine and his staff. McDonough was greeted by Levine and brought to his office in the back of the store. Seated in the back of the office at a desk behind Levine's was an elderly man who McDonough subsequently learned was Dick. Levine told McDonough some of the history of the Company, as well as his personal history, having worked there since he was sixteen. On a few occasions during their meeting, Levine walked out of the office to attend to the store. During one such instance, McDonough struck up a conversation with Dick. Dick introduced himself to McDonough as the former owner of the Company. Dick told McDonough, in sum and substance, that he had owned the business for years, but Levine took it over, and Dick was there to help Levine and just did scheduling and paying bills. Dick spoke of his time as owner of the Company in the past tense and several times told McDonough that Levine had taken over ownership of the business and was in charge.
Over the past six years, Radiant's business relationship with the Company has grown, but at no point during that time has there been any indication or documentation that anyone other than Levine was the owner of the Company.
5. Michael Medolla Affidavit
Medolla affirms that he has represented the Company's television advertising since 1998. Over the last two decades, he has spent many hours speaking with Dick and Levine and came to know them and the Company's business. In the earlier years, both Dick and Levine were involved in putting together the advertising, with Levine handling the majority of the negotiations. After several years, however, Levine exclusively handled the commercial productions and the annual media buys. This was no surprise, as Levine and Dick made it known to Medolla - early in their relationship and during more than one conversation - that Dick had made Levine his partner. Dick also told Medolla that Levine would be taking over the company in the future. Several years ago, Dick told Medolla that Levine had taken over ownership of the business, and he was just coming in to keep himself out of trouble at home. Dick was joking, but Medolla did not doubt that he meant what he said about Levine having taken over the business, and that Dick no longer owned the business.
6. David Frey Affidavit
David Frey affirms that he is a certified public accountant with Frey & Wagner, CPA's PC, in Plainview, New York. Frey has had a business relationship with the Company since 2000, and prepared and filed the Company's tax returns in 2000, and from 2005 to the present. The 2000 tax return was signed by Dick and listed Levine and Dick as officers on Schedule E with the ownership percentage illegible. The tax returns from 2005 through 2010 were signed by Levine and listed Dick and Levine as 50% owners. The 2011 and 2012 tax returns were signed by Dick and listed Dick and Levine as 50% owners. The 2013 tax return was signed by Levine, who was listed as the sole owner.
During his time as the Company's accountant, and until Dick died in August 2014, Frey routinely interacted with both Dick and Levine to discuss the filing of the Company taxes. From at least 2005, Dick and Levine advised Frey that they each owned 50% of the Company, and the tax returns reflect that accordingly. At some point during their relationship, Frey learned that Levine and Dick had an agreement in place for the buyout of Dick's shares. From that point - between 2008 and 2010 - the topic of an ownership change from 50/50 to something else was a regular part of Frey's annual conversations with Dick and Levine.
Dick and Levine also provided Frey with documents concerning the Company, including the 2002 Agreement, 2007 Amendment, and 2010 Addendum. Frey kept each of these documents in the file that he maintained at his office for the Company. These three documents were provided to Frey before Dick died, and Frey believes they were given to him by Dick. Frey's file also contained a Company Resolution dated January 3, 1979, a Company Resolution dated October 23, 2010, and a one-page document signed by Albert and Dick in which they resign their positions as directors. Frey cannot recall when these documents were provided to him, or whether they were provided by Dick or Levine, but he believes he received them prior to Dick's death. Dick retired in August or September 2013 and began to take less salary than Levine.
7. Rosemarie Cohen Affidavit
Rosemarie affirms that she has been the Treasurer of the Company since 1998. Rosemarie is the holder of all of the 200 original stock certificates issued by the Company (the "Stock Certificates"), which were endorsed in blank by her brothers-in-law, William and Albert, the two founders of Brothers Three f/k/a Empire State Swimming Pool Co., Inc. ("Empire"). The Stock Certificates were given to Rosemarie by her husband "years ago." See Def. Exh. A. The one stock certificate in Dick's name, which correlates with the receipt in the Brothers Three stock certificate book, represents fifty shares of stock transferred to Dick from William. This certificate is the only one in Dick's name, and the only one that Rosemarie possesses which is not endorsed. The Brothers Three stock book receipts also indicate that of these fifty transferred shares represented in Dick's stock certificate, Dick transferred ten to Levine and two to Amatucci, leaving a balance of thirty-eight shares. All of the Stock Certificates, with the exception of Levine's and Amatucci's, were given to Rosemarie by Dick many years ago with the specific instruction to keep them in a safe place and to not give them to anyone. Rosemarie placed these certificates in her fireproof file box with all of her other important personal documents. The certificates remained there until her prior attorney requested to copy them for discovery in this litigation.
When Dick and Rosemarie began dating, he worked summers for William at his factory in Woodhaven, Queens, manufacturing pool liners. In 1962, William, Albert, and William's wife, Barbara, incorporated Empire. That same year, Rosemarie and Dick married and were living in Massachusetts. Dick's brothers offered him a full-time position with the corporation, which he accepted. The corporate name was then changed to "Brothers Three, Inc." Dick stayed in New York during the week, and a year later, after their first child was born, Rosemarie followed.
William and Barbara were gracious enough to allow Dick, Rosemarie, their newborn, and Rosemarie's two daughters from a prior marriage to move into their home on Long Island until they found a place of their own. Albert and his wife, Edna, also lived on Long Island and had children the same age. Each day, when the "brothers" left for work, the wives stayed back with the children because they were stay-at-home mothers. As far as Rosemarie is aware, Barbara Cohen never worked for the corporation. Another brother, Irving, joined the company for a short period of time but it did not work out. The dynamics of the company remained the same: William manufactured the pools, Albert ran the retail until Dick joined the Company, at which time Albert became the sales representative and Dick continued to run the entire retail-end of the business until his death.
In the 1970s, Dick's brothers transferred all of their shares of stock to Dick. William decided to focus on pool manufacturing and spent all of his time running the business, while Dick spent day and night at the Company. The transfer must have occurred on May 31, 1976 because that is the date that William endorsed his Empire stock certificate and the date indicated on the receipt. The two businesses fed each other, as Dick remained loyal to his brother's company, which was always the Company's largest and only supplier. This changed several years ago when Levine began contracting with Radiant Pools, an in-ground pool supplier.
In 1978, Albert decided to retire and move to Florida. Dick and Albert entered into an agreement where he would transfer his shares of stock in the Company to Dick. At that time, Albert had two stock certificates - one from Empire and one from Brothers Three - each representing fifty shares for a total of 100 shares of stock. Both of these certificates were endorsed in blank by Albert, however, the Empire certificate also contained a typed notation on the back stating "Transfer subject to agreement between Albert Cohen and Brothers Three dated November 9, 1978." Together with these two certificates were two separate agreements: 1) the Letter Agreement between Dick and Albert dated November 9, 1978, which was specifically referenced on the back of Albert's Empire Stock Certificate and stated that the terms for the sale of those fifty shares was $100,000 payable $10,000 per year, commencing August 1, 1979, and 2) an employment agreement between Dick and Albert's son, Gerald, dated December 29, 1978, stating that an annual salary of $10,000 per year was to be paid to Gerald weekly, commencing on January 1, 1979. The last document accompanying these certificates was Albert's "Resignation" from the Board of Directors.
Due to the name change from Empire to Brothers Three, there are two stock books, one for Empire and one for Brothers Three, and Rosemarie possesses both books. Until recently, Rosemarie thought that Empire was a completely different company than Brothers Three and just found out that they are the same corporation with a name change. While Rosemarie recalls providing her first attorney with all of the stock certificates and stock books, she cannot recall if these submissions included the Empire stock book and does not recall anyone requesting anything from Empire.
While Levine claims to be at least a 50% owner using only the corporate tax returns to verify the claim, Rosemarie recalls that the accountant advised Dick that if Levine were to receive equal pay, it must be justified by an indication of equal ownership for tax purposes. Share ownership and transfers have always been reflected and recorded in the stock book and on the stock certificates themselves. Accordingly, Levine only owns ten shares of stock in Brothers Three. The fact that Dick never gave up his stock certificate clearly shows his lack of intent to transfer it. Rosemarie is in possession of Dick's stock certificate, which was never endorsed and obviously never delivered to Levine, but remained in her home with Albert and William's stock certificates.
Levine's claim that Dick resigned from the Board of Directors in 2010 is untrue. Levine is the only signatory to the 2010 Resolution in which he apparently elected himself as President. While Levine claims that Dick was present, that cannot be true because Dick was unaware of this Resolution and continued to sign all of the tax returns as President. Moreover, Dick continued to receive officer compensation continuously as represented in the tax returns. To the extent Levine theorizes that the 2012 Memo commenced the buyout, the memo was given to David and Stetzer and no one else. In fact, Stetzer testified that she never spoke to Levine about it. Rosemarie is certain that if Levine thought the 2012 Memo was the beginning of the transfer contemplated under the 2002 Agreement, Rosemarie's corporate credit cards would have been cancelled, as opposed to waiting until Dick died, and Levine would have stopped permitting Rosemarie to take free pool supplies, which he did as soon as Dick died.
Dick never retired and at the time of his death, he was actively involved with the Company. While Dick stopped making charges on his corporate credit card, it was only for a short time and only because Dick misplaced the credit card. On June 29, 2014, just before Dick died, they went shopping for office and showroom furniture using the very same credit card that Levine claimed he stopped using. Moreover, Dick did not remove photos from the office because he was retiring. The Company was being audited and the photos of numerous vacations were removed to "tone down" the appearance that the Cohens led a luxurious lifestyle.
Rosemarie understand that the 1998 meeting between Dick and Levine had to do with an offer for Levine to transfer to the Bethpage main office and work with Dick to learn the ropes in the hopes that he would one day be able to run the business. As far as receiving equal income, Levine told Rosemarie that his pay reflected his additional job functions to enable Dick to take more time off. Levine did not purchase 50% of the stock in the Company and Dick did not give it to him. Levine was gifted ten shares and mentored to run the business so that Levine could buy out Dick when he retired. The issue is not whether Dick intended to sell his shares to Levine, but the terms of the sale and whether the sale actually occurred.
Levine's purported "disinterested witnesses with knowledge," with the exception of Nathanson and Luongo - Rosemarie's soon to be "ex" son-in-law - are actually interested and have a financial stake in the outcome of these proceedings. Prior to being hired as the Company's accountant, Frey lived in Levine's home as a tenant and was and continues to be his personal accountant. Additionally, a "client copy" of the 2012/13 corporate tax return contained alterations. The "client copy" indicated that Levine was the signatory and President, while the actual return filed represented that Dick was the signatory. The filed return was accompanied by an e-file authorization that was physically signed by Dick as President. While David deposited checks from the Company and received the Memo from Dick, neither he nor Rosemarie had any reason to believe that any of these payments were toward a purported buyout of Dick's shares in the corporation. Stetzer was hired by Levine and is currently employed by him, and Levine's counsel prepared an affidavit which contained inaccuracies that were later contradicted by Stetzer's deposition testimony. The only thing Stetzer can establish is that Dick typed a Memo to his son and, in accordance with that Memo, she made payments to David. Amatucci, referred to as a shareholder but not treated as one, testified that he would quit if Rosemarie takes back the Company and that Levine has offered to purchase his stock shares. McDonough and Siricio of Radiant are interested insofar as the Company is their exclusive distributor on Long Island.
During his employment at the Company, Levine and his wife started their own pool installation company behind Dick's back and ran the business out of their East Northport store. Dick was furious, but Levine's wife continued the business. Each of Levine's children and their son-in-law works for the Company, receiving huge salaries, pensions, and health benefits, while Rosemarie's children were all slowly pushed out. As soon as Dick passed away, Levine stopped airing Rosemarie's daughter's commercial.
While Rosemarie is Treasurer of the Company, she was not present at any of the meetings described in this action. After David left the Company, Rosemarie was elected Treasurer because Dick felt comfortable having Rosemarie on the Board of Directors in the event something happened to him. Immediately after Dick passed away, Levine removed Dick's name as primary card holder from the American Express corporate card, which thereby cancelled Rosemarie's personal account and over 184,000 frequent flier miles, which were used by Levine. Levine also cancelled Rosemarie's Costco membership.
8. Howard Levine Affidavit
Levine affirms that Rosemarie's claim that Dick removed photos from his wall because of an audit is false, as an audit occurred years ago but was scheduled and conducted at their accountant's offices. Additionally, no accountant has ever directed that Levine be listed as a 50% owner on tax returns because they were earning similar compensation, and Levine is not aware of any tax reason for that to be the case. Contrary to Rosemarie's contentions, the Company has not charged her for the thousands of dollars of equipment and pool supplies she has taken since Dick's passing and recently arranged for heater repairs for her spa and pool at no charge. Further, Levine's wife started a pool installation company in 1980 and sold it in 2005 - after the 2002 Agreement was in place and they believed Levine's ownership in the Company was secure. Throughout the 1980s and 1990s, Levine's wife's installation company was an active contractor for the Company and, in fact, for decades, that company assembled the showroom models at the Company's stores with Dick's knowledge and at his direction.
C. The Parties' Positions
Plaintiff argues that the undisputed facts establish Rosemarie's breach of the 2002 Agreement such as to warrant his requested declaratory judgment. In particular, the record establishes: 1) Dick directed Nathanson to prepare a written contract memorializing his 1998 buyout offer to Levine and directed the agreement to be structured as a redemption of stock, with payments going to David, 2) in 2007, after Rosemarie raised concerns about the notice provision in the 2002 Agreement, Dick directed Nathanson to prepare the 2007 Amendment, which Dick, Levine, and Amatucci signed, 3) Dick and Levine executed the 2010 Addendum, which recites the same weekly payments as set forth in the 2002 Agreement, with the difference that the entirety of the $290,160 recited as consideration in the 2002 Agreement would go to David instead of Dick, 4) the payment arrangement set forth in these documents is the same payment arrangement utilized when Dick became the sole shareholder of the Company in 1978, and 5) the 2002 Agreement recites appropriate consideration.
Plaintiff contends that one of two events triggered the purchase obligations under the parties' agreement: 1) Dick's initiation of the contemplated buyout payments by preparing the 2012 Memo, and 2) Dick's passing. Under either notice event, Levine and/or the Company fully performed under the terms of the parties' agreement by remitting payments to David and requesting to schedule the closing. Rosemarie has breached her obligations by refusing to schedule a closing or transfer the shares to the Company. Rosemarie's refusal to recognize the sale of Dick's shares to Levine and her statements to third-parties - including employees and vendors of the Company - that, inter alia, Levine is not an owner of the Company and/or that Rosemarie is soliciting offers to sell the Company have irreparably harmed Levine by calling into question his standing and authority to run the Company. Rosemarie's refusal to close as contemplated by the parties' agreement has deprived Levine of his property interest in the Company. Accordingly, the Court should find that Dick's interest in the Company was redeemed by operation of law on May 5, 2012, when the payments to David commenced. This finding warrants dismissal of Rosemarie's accounting claim, which is predicated upon an ownership interest that neither she nor Dick's Estate possess.
Plaintiff further argues, in anticipation of Defendant's potential arguments, that: 1) even if the 2007 Amendment and 2010 Addendum are not considered, judgment for Levine is still warranted based exclusively on the terms of the 2002 Agreement, 2) Dick, the party to be charged, did, in fact, sign the 2007 Amendment and 2010 Addendum, and any failure to complete the additional documentation contemplated by the 2002 Agreement does not constitute material breaches or failures of conditions precedents, as all such documentation would be finalized at or cured before the closing, 3) courts frequently overlook technical irregularities in the management and affairs of a family or closely-held corporation where a finding of illegality could work injustice, and 4) any argument that the 2002 Agreement was intended to compensate David for the interest he would have received had he remained with the Company is unsupported. Moreover, the undisputed facts establish Levine's ownership of twenty-four shares in the Company as Dick's equal partner, and the Court should find, at a minimum, that the shares of the Company were distributed as follows: twenty-four to Dick, twenty-four to Levine, and two to Amatucci.
Defendant argues that CPLR § 4519 precludes Plaintiff's reliance upon the testimony and affidavits of interested witnesses. Additionally, numerous credibility issues exist regarding manipulated tax returns, and undated and unsigned writings such as the purported resignation and 2012 Memo. In particular: 1) Frey's testimony contradicts Levine's testimony regarding a purported meeting Levine had with Frey and Dick to prepare the 2013 tax return prior to Dick's passing, 2) a "client copy" of the 2011/2012 tax return presented during the Estate Discovery Proceeding lists Levine as signator and President of the corporation when, in fact, the actual filed tax return is signed by Dick, 3) the 2012 Memo is an unsigned, undated, unnoticed document that was not delivered to anyone except Stetzer, the bookkeeper, in violation of the 2002 Agreement, 4) Stetzer is an interested witness and as such, any testimony regarding her observances, impressions, and communications with Dick are excludable and should not be used in support of Plaintiff's motion, and 5) Stetzer's credibility is at issue.
Defendant contends that Rosemarie's physical possession of original Stock Certificates endorsed in blank without restriction raise a presumption of ownership. Dick gave Rosemarie all of the original Stock Certificates endorsed in blank by their record owner. Levine, however, claims a gift of 30% ownership stock was given to him - thereby raising Levine's ownership from ten shares to a 50% owner - based on an alleged conversation with Dick and questionable tax returns. Further, the 2002 Agreement is nothing more than a letter of intent, as the writing was intentionally left ambiguous leaving actual payment obligations, share amounts, and effective and termination dates to be set forth in documents that were admittedly never drafted. In the absence of a closing and other obligations necessary to complete and/or execute the transfer of such interest, Rosemarie stands in the shoes of the vendee and is the actual and beneficial owner entitled to all rights and dividends until the closing. The 2012 Memo addressed only to David and given only to the bookkeeper cannot be deemed notice under the express provisions of the agreement, and the subsequent payments do not comport with the obligations or consideration expressed in the agreement.
Defendant argues that the Company did, in fact, engage in corporate formalities. Moreover, numerous meetings are alleged to have taken place between Levine and Dick, however, all shareholders and members were not present for these meetings, regardless of the formality. Defendant asserts that issues of fact exist as to whether 1) the 2002 Agreement was a valid and enforceable redemption agreement, based upon valid consideration and fair valuation of the Company, 2) the subsequent amendment and addendum were valid, 3) the 2012 Memo was a buyout memo, 4) Levine fully performed his obligations pursuant to the agreement, and 5) the corporate tax returns are evidence of ownership in the corporation as opposed to stock certificates.
On reply, Plaintiff argues that the Court should strike Defendant's counsel's affirmation because it is entirely comprised of argument, replete with case citations and extended interpretation of case law, facts, credibility, and the weight of testimonial and documentary evidence in violation of Commercial Division Rule 17. While Defendant argues that the non-party fact affidavits were made by "interested" witnesses, CPLR § 4519 requires that the interest in question be present, certain, and vested, and not an interest which is uncertain, remote, or contingent. In fact, Defendant's attempt to introduce evidence of Dick's statements or intent in providing stock certificates to her is inadmissible, and Defendant concedes that Nathanson is not an interested witness. Defendant's disqualification efforts are, in actuality, credibility attacks that do not constitute interest for purposes of Section 4519.
Plaintiff contends that Defendant now claims, for the first time in a five-year old dispute, that she is the holder of all of the 200 original stock certificates issued by the Company because they were endorsed in blank and given to her by her husband "years ago." Plaintiff's attempt to belatedly introduce evidence and arguments after the close of discovery should be rejected where, as here, these documents were responsive to demands propounded over two years ago. The introduction of new evidence and a new case theory at this late stage causes substantial prejudice. Even taking Defendant at her word that she realized the import of the Stock Certificates at her deposition, she waited over five months to produce the documents and there is no excuse for this late production. To accept Defendant's new argument that Dick died owning 76% of the 200 outstanding shares, the Court would need to ignore 1) Frey's testimony and the Company tax returns for over a decade (many of which were signed by Dick) stating that Levine was a 50% owner, and 2) Nathanson's testimony that Dick provided him with information for the 2002 Agreement indicating that there were only fifty outstanding shares of stock, Nathanson's contemporaneous notes from his meeting, and the notes that Dick provided to Nathanson.
Plaintiff further argues that 1) Plaintiff does not contend that the 2013 and 2014 Company tax returns are conclusive evidence of the share transfer, 2) the filed 2012 tax return is a foundation for Plaintiff's motion, as there is no dispute over Levine's 50% interest because Dick repeatedly and personally signed off on filed tax returns listing his equal partnership with Levine since at least 2005, 3) the payments commenced by the 2012 Memo are of the same kind and amounts as those listed in the 2002 Agreement and 2010 Addendum, 4) before Defendant's counsel spoke with him, David testified that he understood that the payment arrangement and checks he received were consideration for the buyout of Dick's shares and Frey testified that he learned the buyout payments were being made from the Company account prior to Dick's death, 5) the fact that Stetzer's actual sworn testimony does not comport with a draft affidavit is irrelevant, and purported discrepancies pertaining to Dick's work habits and use of the American Express card are immaterial to this motion, and 6) Rosemarie's position that the weekly payments to David were merely an increase in payments, rather than a part of the 2002 Agreement, is pure conjecture. Rosemarie's assertion that Dick never retired contradicts her own deposition testimony - where she testified that Dick executed the resignation document and conceded that Dick had resigned "at some point" - and Nathanson's testimony that he had a copy of the signed resignation in his files that was given to him by Dick. Rosemarie's allegation that she was unaware of the 2002 Agreement and any purported amendments, addendums, and payments thereunder contradicts her sworn testimony and emails that she knew, contemporaneously, that Dick had offered a partnership to Levine in 1998, engaged Nathanson to draw up a contract in 2002, and that the 2007 Amendment was prompted by a question raised by Rosemarie.
RULING OF THE COURT
A. Motion for Summary Judgment
On a motion for summary judgment, the movant "must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact." Nomura Asset Capital Corp. v. Cadwalader, Wickersham & Taft LLP, 26 N.Y.3d 40, 49 (2015), quoting Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 324 (1986). If the moving party makes the requisite showing, the burden then shifts to the non-movant to demonstrate the existence of material triable issues of fact. Nomura Asset Capital Corp., 26 N.Y.3d at 49. Viewing the evidence in the light most favorable to the non-movant, summary judgment is warranted where the non-movant nevertheless fails to establish a material triable issue of fact. Id.
B. Preclusion
The drastic remedy of striking a pleading, or even of precluding evidence, requires a clear showing that the failure to comply with court-ordered discovery was willful and contumacious. Zakhidov v. Boulevard Tenants Corp., 96 A.D.3d 737, 739 (2d Dept. 2012). See, e.g., Neenan v. Quinton, 110 A.D.3d 967, 968 (2d Dept. 2013) (trial court properly denied cross motion to strike the answer or preclude evidence where the record did not support the plaintiff's argument that the defendants willfully, contumaciously, and repeatedly failed to respond to discovery demands).
C. Relevant Legal Principles
A declaratory judgment requires a justiciable controversy in which the plaintiff not only has "an interest sufficient to constitute standing to maintain the action but also that the controversy involve present, rather than hypothetical, contingent or remote, prejudice to plaintiffs." Touro Co. v. Novus Univ. Corp., 146 A.D.3d 679, 679 (1st Dept. 2017), quoting American Ins. Ass'n v. Chu, 64 N.Y.2d 379, 383 (1985). The elements of a cause of action for breach of contract are the "existence of a contract, the plaintiff's performance pursuant to the contract, the defendant's breach of its contractual obligations, and damages resulting from the breach." El-Nahal v. FA Management, Inc., 126 A.D.3d 667, 668 (2d Dept. 2015).
"The delivery of a stock certificate indorsed in blank by the owner of record is effectual to transfer title to the certificate and the interests represented by the certificate." Matter of Ruck, 33 Misc. 2d 687, 689 (Sur. Ct. N.Y. Cty. 1962), aff'd, 17 A.D.2d 614 (1st Dept. 1962). Cf. Lapidus v. Hiltzik, 160 A.D.2d 682, 683 (2d Dept. 1990) ("[w]hen stock certificates are pledged without restriction, then the delivery of those certificates accompanied by stock powers indorsed in blank render the securities freely negotiable").
A permanent injunction requires "a violation of a right presently occurring, or threatened and imminent, that [the plaintiff] has no adequate remedy at law, that serious and irreparable harm will result absent the injunction, and that the equities are balanced in [the plaintiff's] favor." Caruso v. Bumgarner, 120 A.D.3d 1174, 1175 (2d Dept. 2014), quoting Elow v. Svenningsen, 58 A.D.3d 674, 675 (2d Dept. 2009).
D. Application of the Principles to the Instant Action
Plaintiff's motion is denied. At the outset, the Court strikes Defendant's counsel's affirmation in opposition based on its extensive discussion of case law. See 22 N.Y.C.R.R. 202.8(c) ("[a]ffidavits shall be for a statement of the relevant facts, and briefs shall be for a statement of the relevant law"); see also Commercial Division Rule 17 (setting word limitation for briefs, memoranda of law, affidavits, and affirmations). The Court, however, declines to preclude Defendant from introducing the Stock Certificates as evidence. While Defendant's delay in proffering the Stock Certificates certainly raises eyebrows, preclusion is inappropriate in light of Defendant's apparent confusion as to the import of the Stock Certificates - which were issued under Empire, the Company's prior name - and the production of these Stock Certificates well in advance of trial. Plaintiff will be permitted to reopen Defendant's deposition, if necessary, to address the limited issue of the Stock Certificates with any deposition to be completed by September 30, 2019 and to last no more than two hours.
The Court concludes that triable issues of fact preclude the award of summary judgment in Plaintiff's favor. Defendant has proffered the Stock Certificates - two of which were issued by Empire to Albert and William, and three of which were issued by Brothers Three to Albert, William, and Dick. See Def. Exh. A. The Stock Certificates are endorsed in blank by their record owners and do not contain any restrictions with the exception of Albert's Empire Stock Certificate, which states that the transfer is subject to the agreement between Albert and Brothers Three dated November 9, 1978. Defendant's possession of the Stock Certificates raises issues of fact as to ownership of the Company stock and conflicts with the factual narrative proffered by Plaintiff and his supporting witnesses. The Court need not address the parties' arguments regarding CPLR § 4519, which may be raised at trial to the extent necessary.
CONCLUSION
Plaintiff's motion for summary judgment is denied. As set forth more fully above, Plaintiff will be permitted to reopen Defendant's deposition, if necessary, to address the limited issue of the Stock Certificates with any deposition to be completed by September 30, 2019 and to last no more than two hours.
All matters not decided herein are hereby denied.
This constitutes the decision and order of this Court.
The parties are reminded of the pre-trial conference scheduled for October 10, 2019. DATED: Mineola, NY
September 11, 2019
ENTER
/s/_________
HON. TIMOTHY S. DRISCOLL
J.S.C.