Opinion
No. 650378/2009.
05-07-2015
NORYB VENTURES, INC. d/b/a Byron Ventures and David Byron, Plaintiffs, v. Stanley MANKOVSKY, Stanley Capital Mortgage Company, Inc., Margaret Consulting, LLC., and Margaret Mankovsky, Defendants.
Plaintiffs are represented by Steven M. Kaplan and Eric S. Schaer of Kaplan Kravet & Vogel P.C. Defendants Stanley Mankovsky and Stanley Capital Mortgage Company, Inc. (“Stanley Capital”), are represented by Andrew J. Borsen of Gambourg & Borsen LLC. Defendants Margaret Mankovsky and Margaret Consulting, LLC, are represented by Allan R. Freedman, Esq.
Plaintiffs are represented by Steven M. Kaplan and Eric S. Schaer of Kaplan Kravet & Vogel P.C. Defendants Stanley Mankovsky and Stanley Capital Mortgage Company, Inc. (“Stanley Capital”), are represented by Andrew J. Borsen of Gambourg & Borsen LLC. Defendants Margaret Mankovsky and Margaret Consulting, LLC, are represented by Allan R. Freedman, Esq.
OPINION OF THE COURT
EILEEN BRANSTEN, J.
Before the Court are Plaintiffs David Byron and Noryb Ventures, Inc. d/b/a Byron Ventures' claims for fraud, breach of contract, tortious interference with contract, accounting, unjust enrichment, and breach of implied fiduciary duty, as well as a request for legal fees and sanctions. The parties appeared for a bench trial held before the Court from July 24 through July 31, 2014.
Since this was a bench trial, the Court was both the finder of facts and the determiner of questions of law. The Court considered the testimony of the witnesses, gave weight to that testimony, and generally determined the reliability of the witnesses' testimony. See Horsford v. Bacott, 32 AD3d 310, 312 (1st Dep't 2006). The Court also considered the interest or lack of interest in the case and the bias or prejudice of the witnesses. See People v. Ferguson, 178 A.D.2d 149, 149 (1st Dep't 1991).
Having reviewed the parties' submissions and having reflected upon the evidence submitted at trial, the Court renders the following findings of fact and conclusions of law.
FINDINGS OF FACT
I.The Parties
This action arises out of Plaintiffs' investment in the now-defunct mortgage banking and brokerage firm, Stanley Capital Mortgage Company, Inc. (“Stanley Capital”). David Byron (“Byron”) is the sole owner of Noryb Ventures, Inc. d/b/a Byron Ventures (“Byron Ventures”).
Prior to Plaintiffs' investment, Stanley Mankovsky was the CEO, director, and sole shareholder of Stanley Capital. Margaret Consulting LLC (“Margaret Consulting”) was a company purporting to provide leads (i.e., lists of prospective customers) for Stanley Capital's sales force, as well as other mortgage-and lead-related services. Margaret Consulting was equally co-owned by Stanley and Margaret Mankovsky.
II.Early Negotiations and the September 2008 Loan
During the 1990s, Byron and Stanley Mankovsky became friends while playing together in a local hockey league. In early 2008, Byron was seeking out new investment opportunities, and they began discussions regarding the possibility of Byron investing in Stanley Capital.
Those discussions intensified in August 2008 as a result of Stanley Capital experiencing a cash shortage. (Trial Transcript 46:7–13.) Without additional cash, Stanley Capital would have been unable to satisfy its net worth requirements, which were needed to maintain its licensure as a mortgage broker and banker and also to satisfy the requirements of its “warehouse line” credit facility. (Tr. 367:4–369:11.)
The result of those discussions was that on September 10, 2008, Byron loaned $250,000 to Stanley Capital. (Tr. 370:4–371:5.) Later that month, Byron Ventures began providing consulting services to Stanley Capital at a rate of $10,000 per month. (Tr. 371:16–24.) Among other things, Byron Ventures' consultancy focused on lead generation and the negotiation of payables on Stanley Capital's behalf. (Tr. 371:25–372:13.) It was contemplated that Byron Ventures would later make an additional investment and that the $250,000 loan would be converted from debt to equity. (Tr. 312:7–13 .)
Following the September loan, discussions continued regarding an additional equity investment by Byron Ventures. (Tr. 60:26–61:7.) Having had the opportunity to conduct due diligence while working as a consultant, on December 29, 2008, Byron sent Stanley Mankovsky a draft letter of intent, whereby Byron offered to invest a total of $750,000 in exchange for a 50% ownership interest in Stanley Capital. (Pls.' Ex. 20; Tr. 62:22–63:26.)
Negotiations between Byron, Stanley Mankovsky, and their respective attorneys continued. Notably, Stanley Mankovsky expressed a need to decrease Byron's percentage of ownership because he “wanted to retain control” of Stanley Capital. (Tr. 383:2–5.) These negotiations culminated with the execution of a letter of agreement (the “Letter Agreement”) on December 30, 2008, which provided for a total investment of $750,000 by Byron Ventures in exchange for 46% ownership interest in Stanley Capital. (Pls.' Ex. 22.)
Byron Ventures' investment was made up of (i) the September 10, 2008 loan of $250,000 which would be converted to equity, (ii) an additional cash investment of $470,000, and (iii) an unpaid balance of $30,000 for three months of Byron Ventures' consulting services, which would also be converted to equity. (Letter Agreement at 2.)
Byron Ventures' total investment of $750,000 was referred to as the “invested capital.” (Letter Agreement at 2.) The Letter Agreement contained a section titled “Conditions on Uses of Invested Capital,” which limited the use of invested capital to “working capital and merger and acquisition activity only.” (Letter Agreement at 2.) The Letter Agreement also provided for the reimbursement of legal fees associated with documenting and finalizing Byron Ventures' 46% acquisition, which were estimated to be $10,000 at the time of execution of the Letter Agreement. (Letter Agreement at 2.)
The Letter Agreement stated that it was “binding” and would be superseded only by certain subsequently executed documents, which were set forth in a proposed timetable in the Letter Agreement. (Letter Agreement at 3.) Pursuant to the terms of the Letter Agreement, Byron Ventures wired $470,000 to Stanley Capital on December 31, 2008. (Tr. 390:5–8.)
IV.The Breakdown of the Parties' Relationship
Beginning in January 2009, Byron began working at Stanley Capital as its president. (Tr. 84:19–85:7.) During this period, while working with Stanley Capital's bookkeeper, Shelly Solano, Byron became aware of payments being made to Margaret Consulting, ostensibly for lead generation and other consulting services, for which Margaret Consulting would receive cost plus a 15% mark-up. (Tr. 88:7–16; 94:21–95:3; 97:15–20.) Byron repeatedly expressed his concern to Stanley Mankovsky, that the services provided by Margaret Consulting were not bona fide and that the payments should cease. (Tr. 96:23–26.) Stanley Mankovsky, on the other hand, maintained that the services provided by Margaret Consulting were genuine and that it was a valuable relationship for Stanley Capital, which he wanted to have continue. (Tr. 374:13–19; 88:23–89:18.)
At the same time, the parties were working on drafting more formalized transactional documents as contemplated by the timetable in the Letter Agreement. (Letter Agreement at 3; Tr. 99:13–23.) On February 9, 2009, Byron forwarded a first draft of a stock purchase agreement to Stanley Capital's attorney, Aurel Villari. (Pls.' Ex. 25.) Among the comments included in Villari's February 24th response, was the statement that “[p]ercentage of Capital Stock to be purchased must be finalized.” (Pls.' Ex. 28.)
The parties dispute the meaning of this statement. Plaintiffs maintain that Stanley Mankovsky was reneging on his obligation to convey 46% of Stanley Capital to Byron Ventures. (Tr.17:22–108:12.) Defendants submit that it was Plaintiffs who were trying to renegotiate the transaction and acquire a larger percentage of Stanley Capital in exchange for the $750,000 investment. (Tr. 413:12–23.)
Around the same time, Byron became aware of the fact that the Mankovskys were paying certain of their personal expenses directly from Stanley Capital's bank account and recording the transaction as a stockholder loan to Stanley Mankovsky. (Tr. 114:11–115:7.) Byron again expressed concern regarding the amount of cash flowing through Stanley Capital to cover these personal expenses and for payments to Margaret Consulting. (Tr. 114:26–115:15.)
Also throughout February and March 2009, the parties and their counsel were in engaged in further revising the stock purchase agreement. On March 20, 2009, Byron emailed a revised draft of the stock purchase agreement to Stanley Mankovsky and his attorney. (Pls.' Ex. 33.) On March 23, 2009, Aurel Villari responded with comments which included the statement, “I remind Stan and David to finalize the percentage of stock which David is receiving.” (Pls.' Ex. 34.)
The next day, Byron met with Stanley Mankovsky in person and stated that he was going to leave Stanley Capital because the obligation to convey 46% of the company was not being honored. (Tr. 123:6–124:26.) Although the parties and their attorneys met in person soon thereafter in attempt to resolve these issues, they were unable to do so. (Tr. 131:24–132:21.)
V.Payments to Margaret Consulting
Stanley Mankovsky's testimony at trial established that from January through November 2009, Stanley Capital paid Margaret Consulting approximately $308,771, allegedly for leads and related services. (Tr. 531:12–21.) However, the record belies this allegation. With respect to the purchasing of leads, the Mankovskys' testimony at trial was contradictory and therefore lacked credibility. For example, Stanley Mankovsky testified that Margaret Mankovsky was responsible locating lead companies, negotiated prices for leads, and was partly responsible for determining which were the best leads to buy. (Tr. 445:18–25.) By contrast, Margaret Mankovsky testified that she did not know where leads were being purchased from, the prices paid for them, or the kinds of leads that were being purchased. (Tr. 808:10–20.)
No lead lists were offered as evidence at trial. Also, Stanley Mankovsky testified at his deposition that the invoices to Margaret Consulting were sent by email, however despite repeatedly requesting copies of those emails in discovery, none were produced to Plaintiffs. (Tr. 505:23–507:9.) Instead, Defendants argue without citation to the record in their post-trial submissions that “any such lengthy lists, containing outdated names, telephone numbers and other information to identify potential leads, would long since have been of no continuing value and would naturally have been discarded.” (Margaret Defendants' Mem. at 4.)
Defendants' testimony regarding consulting and web design services for which Margaret Consulting was paid by Stanley Capital also lacked credibility. For example, Stanley Mankovsky testified at trial that he did not remember the purpose of the “consulting” purchased from “RCR Corporation” and then resold to Stanley Capital at a 15% markup. (Tr. 494:14–495:4.)
In another example, when asked about an invoice from M31 Studio (which was owned by a former employee of Stanley Capital) for web development services, Stanley Mankovsky testified the services were being billed to Stanley Capital by Margaret Consulting with a 15% markup “because we wanted to make sure that the compliance is done properly, that the graphics are right, and it ran through Margaret Consulting.” (Tr. 500:10–22.) Stanley Mankovsky then testified that it was he, not Margaret Mankovsky, who performed those services for Margaret Consulting. (Tr. 500:23–26.) But when asked why he was billing his own company (Stanley Capital) for these services, he answered, “I am—I don't know why—because that's the way we set it up.” (Tr. 501:7–8.)
Based on the lack of any credible explanation, the Court finds that the amounts paid to Margaret Consulting for leads and other services by Stanley Capital were not for a legitimate business purpose.
VI.The Instant Action
Plaintiffs commenced this action on June 26, 2009. On January 16, 2014, the Court issued a decision granting in part Defendants' motion for summary judgment. After that decision, Plaintiffs' remaining causes of action were for fraud, breach of contract, tortious interference with contract, accounting, and unjust enrichment.
At the close of trial, Plaintiffs moved to conform the pleadings to the evidence and subsequently added an additional cause of action for breach of implied fiduciary duty, which was asserted in their post-trial submissions. Plaintiffs also added a request for an award of attorney's fees and sanctions, stemming from Defendants' allegedly frivolous conduct. The respective parties also separately moved for directed verdicts at the close of trial, which the Court took under submission for resolution in its memorandum decision.
CONCLUSIONS OF LAW
I. Falsus in Uno, Falsus in Omnibus
Plaintiffs request that the Court apply the doctrine of falsus in uno, falsus in omnibus and disregard all of “the testimony given by [Stanley] Mankovsky, except for the testimony which supports Plaintiffs' claims.” (Pls.' Mem. at 38.) In support of this contention, Plaintiffs assert that “[Stanley] Mankovsky's testimony was littered with lies, half-truths and numerous contradictions.” (Pls.' Mem. at 38.)
Under this maxim, “[i]f a witness has testified falsely as to any material fact, the entire testimony of that witness may be disregarded upon the principle that one who testifies falsely about one material fact is likely to testify falsely about everything.” East Side Mgrs. Assoc., Inc. v. Goodwin, 26 Misc.3d 1233 (A), at *8 (Civ.Ct. N.Y. Cnty.2010). Notably, “[t]he maxim is permissive, not mandatory, and it is for this court to determine how much, if anything, to believe from a witness.” East Side Mgrs. Assoc., 26 Misc.3d 1233(A), at *8. The First Department has likewise held that “[d [¶ ] t]he maxim falsus in uno falsus in omnibus ... is permissive only—not mandatory.” People v. Barrett, 14 AD3d 369, 369 (1st Dep't 2005).
In this case, while certain portions of Stanley Mankovsky's testimony were found to lack credibility, other portions did not. Accordingly, the Court declines to apply the maxim of falsus in uno, falsus in omnibus, as broadly as Plaintiffs request, and instead will make credibility determinations on a case by case basis, wherever necessary and appropriate to do so.
II.The Second Cause of Action—Breach of Contract Against All Defendants
Plaintiffs claim that Defendants breached the Letter Agreement in three ways. First, Defendants failed to convey a 46% interest in Stanley Capital to Plaintiffs. Second, Defendants used Plaintiffs' invested capital in an improper manner. Third, Defendants failed to reimburse Plaintiffs for $10,000 in attorney's fees.
To recover on their cause of action for breach of contract, Plaintiffs must establish that “(1) the parties entered into a valid agreement, (2) plaintiff [s] performed, (3) defendant[s] failed to perform, and (4) damages.” VisionChina Media Inc. v. Shareholder Representative Servs., LLC, 109 AD3d 49, 58 (1st Dep't 2013). The first element is satisfied because the parties do not dispute that the Letter Agreement is a valid agreement between Noryb and Stanley Capital. (Pls.' Mem. at 38; Stanley Defs.' Mem. at 12, 20.)
A.Whether Byron Ventures Performed Its Obligations Under the Letter Agreement
Stanley Mankovsky and Stanley Capital (the “Stanley Defendants”) submit that “Byron's attorney was the party responsible for preparing the draft of the stock purchase agreement” and that the first draft of the SPA was not finished until after the deadline set forth in the Letter Agreement. (Stanley Defs.' Mem. at 20.) Though not explicitly stated, the Stanley Defendants appear to argue that Plaintiffs failed to perform their obligations under the contract, to wit, to finish the first draft of the SPA by December 29, 2008, such that they may not now seek to recover for breach of the Letter Agreement. See VisionChina Media, 109 AD3d at 58.
However, the Letter Agreement's plain language does not support the Stanley Defendants' argument. That agreement provides only that “[w]e will work expeditiously to complete a transaction within a time period acceptable to the Company [Stanley Capital].” (Letter Agreement at 3.) Nowhere, though, is there a requirement that Plaintiffs or their attorney were responsible for drafting the Stock Purchase Agreement. Moreover, the timetable which includes December 29, 2008 as the deadline to “[p]repare initial draft of Stock Purchase Agreement” is a “proposed ” timetable and the enumerated deliverables were to be delivered “on or close to ” the dates set forth therein. (Letter Agreement at 3.)
Plainly, the Letter Agreement imposed no obligation on either party to have a completed draft of the stock purchase agreement by December 29, 2008. Rather, the dates set forth in the timetable were suggested deadlines, evidencing the parties' intent to work expeditiously to draft additional documents to formalize their transaction, but imposing no requirement that they do so by a date certain.
As such, Byron Ventures' only requirement to be entitled to receive a 46% ownership interest in Stanley Capital was to provide consideration totaling $750,000 to Stanley Capital. Because it is undisputed that such consideration was provided, the record demonstrates that Byron Ventures performed its obligations under the Letter Agreement.
B.Whether Defendant Stanley Capital Failed to Perform Its Obligations Under the Letter Agreement
1.The Issuance of Stock Certificates
Plaintiffs contend that Stanley Capital breached the Letter Agreement by failing to “transfer 46% (or any other percentage) of Stanley Capital's stock to Plaintiffs” and that Byron Ventures never became “a shareholder in Stanley Capital.” (Pls.' Rebuttal Mem. at 9.) The Stanley Defendants respond that “[t]he Agreement does not explicitly impose a duty to transfer a stock certificate' in order for Noryb to receive its shares in Stanley Capital” and then argue at length that New York law does not require the issuance of “physical shares or certificates in order for [an] interest to vest.” (Stanley Defs.' Mem. at 21.)
The Letter Agreement is silent on the issue of whether the transfer of ownership—Byron Ventures' acquisition of 46% of Stanley Capital—would be memorialized by some additional affirmative step (such as by the issuance of stock certificates). However, “[a]n omission ... in a contract does not constitute an ambiguity.” Reiss v. Financial Performance Corp., 97 N.Y.2d 195, 199 (2001). The correct focus of the Court's inquiry is to discern “what the parties intended .... [and] only to the extent that they evidenced what they intended by what they wrote. ” Akasa Holdings, LLC v. Sweet, 115 AD3d 556, 557 (1st Dep't 2014) (emphasis added). The absence of a provision in the Letter Agreement requiring the issuance of stock certificates or any other tangible act of memorialization is evidence the parties' intent not to impose such a requirement.
Although Plaintiffs argue that such a requirement should nonetheless be read into the Letter Agreement by this Court, the addition of words to a contract by a reviewing court “is appropriate only in those limited instances where some absurdity has been identified or the contract would otherwise be unenforceable.” Jade Realty LLC v. Citigroup Commercial Mortg. Trust 2005–EMG, 83 AD3d 567, 568 (1st Dep't 2011), aff'd, 20 NY3d 881 (2012). That is to say, “[c]ourts may not by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing .” Ashwood Capital, Inc. v. OTG Mgmt., Inc., 99 AD3d 1, 7 (1st Dep't 2012). Here, no absurdity has been identified, nor has it been argued that the Letter Agreement would be unenforceable without a requirement that Plaintiffs' acquisition be memorialized in some way. Significantly, while a “stock certificate is evidence of shareholder status, [it] is not necessary to its creation.” In re Dissolution of M. Kraus, Inc., 229 A.D.2d 347, 348 (1st Dep't 1996) (emphasis added). Thus, the absence of a requirement that stock certificates be issued does not render the Letter Agreement unenforceable.
In addition, Plaintiffs' suggestion that the provision in the unsigned draft stock purchase agreement requiring the issuance of stock certificates supports the imposition of such a requirement is likewise unavailing. As a general matter, “extrinsic evidence is inadmissible to alter or add a provision to a written agreement.” Schron v. Troutman Saunders LLP, 20 NY3d 430, 436 (2013). Rather, this Court must “enforce[ ] the ... agreement according to the plain meaning of its terms, without looking to extrinsic evidence to create ambiguities not present on the face of the document.” Alf Naman Real Estate Advisors, LLC v. Cape Sag Devs., LLC, 113 AD3d 525, 525 (1st Dep't 2014). As stated above, the omission of such a requirement in the Letter Agreement does not constitute an ambiguity. Accordingly, the Court will not rely on extrinsic evidence—such as the stock purchase agreement—to create an ambiguity or to impose such a requirement. At bottom, “it is not a court's function to imply a term to save [a party] from the consequences of an agreement that it drafted.” Jade Realty, 83 AD3d at 568.
For all of these reasons, the Court finds that the Letter Agreement does require that Plaintiffs have been issued stock certificates or that Byron Ventures' status as a 46% owner of Stanley Capital be otherwise memorialized.
2.The Failure To Convey a 46% Ownership Interest of Stanley Capital to Byron Ventures
Plaintiffs also argue that the failure to issue stock certificates or otherwise document Byron Ventures' status as a shareholder evidences a breach of the obligation to convey a 46% equity interest in Stanley Capital to Byron Venture. Plaintiffs highlight the fact that Defendants “never provided a stock certificate or other indicia of ownership to Plaintiffs” and failed to produce “any evidence whatsoever evidencing the transfer or issuance of any shares to Plaintiffs.” (Pls.' Rebuttal Mem. at 9.)
However, as stated above, while a “stock certificate is evidence of shareholder status, [it] is not necessary to its creation.”In re Dissolution of M. Kraus, Inc., 229 A.D.2d 347, 348 (1st Dep't 1996). Rather, “[w]hen the consideration for shares has been paid in full, the subscriber is considered a holder of the shares and is entitled to all rights and privileges thereof.” Kraus, 229 A.D.2d at 348.
Contrary to Plaintiffs' position, the fact that “[i]n the K–1 attached to Stanley Capital's 2008 federal tax return, Byron was listed as only owning .27322 of Stanley Capital” is not dispositive. (Pls.' Mem. at 22.) In Bhanji v. Baluch, 99 AD3d 587 (1st Dep't 2012), the First Department affirmed the dismissal of a dissolution proceeding where the petitioner's tax returns failed to establish her status as a shareholder of the corporation. Bhanji, 99 AD3d at 587.
There, “it [was] undisputed that [the corporation] did not issue any stock certificates, or have any shareholder agreement or organizational meeting” and there was no evidence other than the petitioner's testimony that she had paid for the shares. Bhanji, 99 AD3d at 587. Notably, the corporation's “federal tax return for the year 2000, which indicated that [the petitioner] was a 50% owner of the corporation” was found to be “insufficient, without more, to satisfy petitioner's burden, since corporate and personal tax returns, even when filed with government agencies, are not in and of [themselves] determinative.” Bhanji, 99 AD3d at 587. The court also noted that the federal return was inconsistent with the state return, the latter of which stated that the respondent was the corporation's 100% shareholder. Bhanji, 99 AD3d at 587.
Here, as in Bhanji, Stanley Capital's 2008 K–1 is “not in and of [itself] determinative.” Bhanji, 99 AD3d at 587. While Plaintiffs allege that Stanley Capital's subsequent K–1 is a sham document prepared solely for Defendants' benefit in this litigation, that 2009 document lists Byron as a 46% owner and therefore contradicts the K–1 attached to the 2008 return. Moreover, Stanley Capital's 2009 loan application, referred to as the “Flagstar Application,” is signed by David Byron and lists him as a 46% owner of Stanley Capital. (Pls.' Rebuttal Mem. at 11.)
The discussions between Byron, Mankovsky, and their attorneys, subsequent to the execution of the Letter Agreement, about the need to finalize the “[p]ercentage of Capital Stock to be purchased” also do not establish that Stanley Capital breached its obligation to convey a 46% interest in the company to Byron Ventures. (Pls.' Mem. at 14, 20.) There is no question that Byron Ventures provided to Stanley Capital consideration valued at $750,000, such that “consideration for shares has been paid in full.” Kraus, 229 A.D.2d at 348.
The obligation to convey a 46% ownership interest in Stanley Capital is plainly set forth in the Letter Agreement, which the parties agree is binding. Upon payment of the $750,000, Byron Ventures automatically became “a holder of the shares and is entitled to all rights and privileges thereof.” Kraus, 229 A.D.2d at 348. An attempt thereafter by any of the parties to alter Byron Venture's percentage of ownership, whether to increase or decrease it, amounted to an attempt at renegotiating an already-consummated transaction. Even if “Mankovsky unilaterally declared that he refused to transfer to Byron 46% of Stanley Capital,” the Letter Agreement was still a binding contract, which memorialized Byron Ventures' 46% ownership interest in Stanley Capital and which Plaintiffs could have used to enforce Byron Ventures' rights as a 46% shareholder. (Pls.' Mem. at 17.)
Based on the foregoing, the Court finds that Plaintiffs failed to establish that Defendant Stanley Capital breached the Letter Agreement by refusing to convey a 46% ownership interest to Byron Ventures.
3.The Inappropriate Use of Invested Capital
Plaintiffs also contend that Byron Ventures' “invested capital” was used to pay Defendants' personal expenses in contravention of the Letter Agreement's “Conditions on Uses of Invested Capital.” (Letter Agreement at 2.)
The Letter Agreement's “Conditions on Uses of Invested Capital” required that Byron Ventures' “invested capital” “be used for working capital and merger and acquisition activity only” and could not be used to “pay/repay personal or executive loans, personal expenses, dividends, bonuses or other non-capital or non-investment uses” without David Byron's prior written consent. (Letter Agreement at 2.)
At trial, it was shown that money from Stanley Capital's operating account was used to pay the Mankovskys' personal expenses, such as shopping, traveling, credit card bills, and payments related to an apartment in Florida. (Pls.' Mem. at 33.) For accounting purposes, these expenses were aggregated into a “stockholder loan” to Stanley Mankovsky. From December 31, 2008, to December 31, 2009, the amount of the stockholder loan to Stanley Mankovsky increased from $92,694.13 to $722,790.72—an increase of $630,096.59. (Tr. 536:26–537:6.) According to Plaintiffs, that increase, “plus over $300,000 to pay sham Margaret Consulting Invoices in 2009,” makes it “mathematically impossible that the Invested Capital was not used to fund the Mankovsky family's lavish lifestyle which is obviously well beyond their means.” (Pl.'s Rebuttal Mem. at 12.)
On December 31, 2008, Byron Ventures wired $470,000 to Stanley Capital's operating account at Wachovia, which represented the cash portion of the invested capital. As noted above, the remaining $280,000 was made up of Plaintiffs' September 10, 2008 loan of $250,000 and three months (October, November, and December 2008) of consulting services provided by Byron Ventures and valued at $30,000. Both of those amounts were unpaid and were converted into invested capital pursuant to the Letter Agreement.
The January 1, 2009 opening balance of Stanley Capital's operating account was $767,318.39. (Pls.' Ex. 45 at 283.) The January 30, 2009 closing balance of that account was $147,339.53. (Pls.' Ex. 45 at 283.) During the period from January 1 through 30, 2009, there were checks written from that account totaling $581,362.83 and deposits into that account totaling $139,937.96. (Pls.' Ex. 45 at 283.)
It is undisputed that among the checks written in January 2009 from that account, certain of them were written to pay the Mankovskys' personal expenses. However, there were also checks written from that account which were for legitimate business purposes. Moreover, portions of the credit card bill paid from this account included charges for both personal and business expenses. But, Plaintiffs have not established that the money used to pay the personal expenses was actually Byron Ventures' invested capital. Stated another way, there is nothing in the record which demonstrates that money used to pay the Mankovskys' personal expenses throughout 2009 was the same money deposited by Byron Ventures' on December 31, 2008.
It is also undisputed that Stanley Capital was operating at a loss during 2009. However, that alone does not, as Plaintiffs suggest, establish that the $630,096.59 increase to Stanley Mankovsky's stockholder loan was paid entirely or even partially with Byron Ventures' invested capital. For example, statements for Stanley Capital's operating account show deposits into that account totaling $248,466.82 in February 2009, $272,858.56 in March 2009, and $383,473.06 in April 2009. (Pls.' Ex. 45 at 300, 318, 336.) Thus, there was money coming into that account throughout 2009 that was not invested capital, and Plaintiffs have not distinguished between payments of the Mankovskys' personal expenses made with that money and those made with invested capital.
For the same reasons, the $308,771 paid to Margaret Consulting over the course of 2009 does not alter this conclusion. As stated above, during 2009, there was money in Stanley Capital's operating account other than Byron Ventures' invested capital. The fact that the payments to Margaret Consulting were not actually for the purchase of leads or legitimate services is not the issue. Plaintiffs have not established on a dollar-for-dollar basis that the payments were definitely made using their invested capital.
Because Plaintiffs have not identified a means of distinguishing between invested capital and money deposited into the account from other sources, they have not established that invested capital was actually used to pay personal expenses or to pay Margaret Consulting.
Plaintiffs argue that “[w]ithout segregating the Invested Capital—or at a minimum separately accounting for the Invested Capital—it is impossible for the Defendants to prove that the Invested Capital was used in compliance with the Letter Agreement.” (Pls.' Rebuttal Mem. at 12.) But this reasoning is flawed. In fact, “it is plaintiff[s'] burden to prove” each element of this breach of contract claim. Andrews Intl., Inc. v. Interstate Materials Corp., 2013 N.Y. Slip Op 33049(U), at *4 (Sup.Ct. N.Y. Cnty. Nov. 13, 2013). Plaintiffs do not cite, nor is the Court aware, of any authority supporting the contention that the burden should shift to Defendants.
Moreover, the parties agree that the Letter Agreement had no express provision requiring the segregation of the invested capital from Stanley Capital's other money. It is beyond peradventure that “the role of the courts to enforce the agreement made by the parties.” NML Capital v. Republic of Argentina, 17 NY3d 250, 259–60 (2011). It follows that courts may not “add, excise or distort the meaning of the terms they chose to include, thereby creating a new contract under the guise of construction.” NML Capital, 17 NY3d at 260. This Court will not add a requirement that the invested capital be segregated from Stanley Capital's other money “under the guise of” interpreting the Letter Agreement.
Accordingly, the Court finds that Plaintiffs have not established that Defendant Stanley Capital breached the Letter Agreement by using the invested capital for an improper purpose.
As an aside, the Court notes that Byron Ventures' rights as a shareholder of Stanley Capital include the right to commence a derivative action on Stanley Capital's behalf. Any recovery in such a derivative action clearly would inure to Stanley Capital's benefit, rather than to Plaintiffs'. For example, by establishing, as Plaintiffs have, that the payments by Stanley Capital to Margaret Consulting were not made for a legitimate business purpose, Stanley Capital might have been able to recover of some or all of those monies in a derivative action brought on its behalf, assuming a proper claim was brought.
Nevertheless, Plaintiffs' claims in this action are asserted directly (as opposed to derivatively). Thus, Plaintiffs seek to vindicate their own rights under the Letter Agreement. Given the way in which Plaintiffs have chosen to assert their claims, the inquiry is not merely whether any of Stanley Capital's money was misused. Plaintiffs must show breach and injury to themselves under the Letter Agreement. Therefore, having failed to prove that Byron Ventures did not become a 46% shareholder of Stanley Capital, Plaintiffs were required to establish by a preponderance of the credible evidence a breach of the invested capital provision—that is, the invested capital (i.e., Plaintiffs' money) was used in a manner contravening the Letter Agreement's restrictions. For the reasons addressed in this opinion, Plaintiffs have failed to do so with regard to their breach of contract claim.
4.The Recovery of Attorney's Fees Under the Letter Agreement
The last portion of Plaintiffs' breach of contract claim seeks the recovery of $10,000 in attorney's fees, the payment of which was provided for by the Letter Agreement. In pertinent part, the Letter Agreement provides that “[t]he Company [Stanley Capital] agrees that the legal fees incurred by Byron Ventures and the Company in order to document and finalize this transaction will be paid from the invested capital. The estimated legal fees are $10,000.” (Letter Agreement at 2.) David Byron testified at trial that his understanding of that provision was “asking Stan to agree to reimburse $10,000 for legal fees associated with this transaction and he [Stanley Mankovsky] agreed.” (Tr. 81:19–21.)
However, David Byron's understanding of that provision is belied by its plain language. The provision provides for the reimbursement for both Byron Ventures' and Stanley Capital's legal fees. Even if David Lagasse (Plaintiffs' transactional attorney during the relevant period) performed the majority of the drafting, it is undisputed that Aurel Villari (Stanley Capital and Stanley Mankovsky's transactional attorney during the relevant period) also performed at least some work “in order to document and finalize this transaction,” which would be reimbursable under that provision.
There is nothing in the record which differentiates between the legal fees incurred by either party, and accordingly it is impossible to determine whether some portion of the $10,000 of legal fees sought would be properly allocable to Defendants. To that end, Plaintiffs have submitted no time sheets or other records of the work performed, which would evidence an entitlement to reimbursement of $10,000.
Separately, the provision in question provides for reimbursement of “the legal fees incurred by Byron Ventures and the Company in order to document and finalize this transaction will be paid from the invested capital.” (Letter Agreement at 2 (emphasis added).) Therefore the parties' transaction would need to be finalized, i.e., the steps set forth in the time line at the end of the Letter Agreement would have to be completed, before any reimbursement of could occur. Because the transaction was not finalized, any legal fees incurred by either side would not be reimbursable.
The statement in Aurel Villari's February 24, 2009 email to David Lagasse, “[y]our fees to be paid by the Company will be capped at $10,000,” does not alter the analysis. (Pls.' Ex. 28.) It cannot be determined from that statement whether $10,000 is the amount of fees which have already been earned or whether that limit was imposed prospectively, in the event that Plaintiffs' attorney fees eventually exceeded $10,000.
For all of the reasons stated above, Plaintiffs have failed to establish that Defendant Stanley Capital breached the Letter Agreement. Because no breach was proven, the Court does not reach the issue of whether the remaining Defendants, who were not parties to the Letter Agreement, would also be liable for breach of contract under a veil-piercing or alter ego theory of liability.
II.The First Cause of Action—Fraud Against All Defendants
Plaintiffs' first cause of action is for fraud and is asserted against all Defendants. Under New York law, the elements of a claim for fraud are “[1] a material misrepresentation of an existing fact, [2] made with knowledge of its falsity, [3] an intent to induce reliance thereon, [4] justifiable reliance upon the misrepresentation, and [5] damages.” Lemle v. Lemle, 92 AD3d 494, 499 (1st Dep't 2012) (citing Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 NY3d 553, 559 (2009) ). The thrust of Plaintiffs' fraud claim is that Defendants “never intended to honor the terms of the Letter Agreement” and made various misrepresentations in order to induce Plaintiffs to execute the Letter Agreement and invest $750,000. (Pls.' Mem. at 37.)
Arguing that the fraud claim is not duplicative of the one for breach of contract, Plaintiffs correctly point out that a claim of fraud claim which arises out of a breach of contract may be non-duplicative (and therefore viable) under certain circumstances. Specifically, “[a] fraud-based cause of action may lie ... where the plaintiff pleads a breach of a duty separate from a breach of the contract.” Manas v. VMS Assoc., LLC, 53 AD3d 451, 453 (1st Dep't 2008). That is, “where the plaintiff pleads that it was induced to enter into a contract based on the defendant's promise to perform and that the defendant, at the time it made the promise, had a preconceived and undisclosed intention of not performing' the contract, such a promise constitutes a representation of present fact collateral to the terms of the contract and is actionable in fraud.” Manas, 53 AD3d at 453–54 (citation omitted).
However, the “species of damages” recoverable for a fraud claim of this type are different than those available for breach of contract. Manas, 53 AD3d at 454. “[T]he damages recoverable for a breach of contract are meant to place the nonbreaching party in as good a position as it would have been had the contract been performed.” ‘ Manas, 53 AD3d at 454 (citation omitted). Whereas, “the damages recoverable for being fraudulently induced to enter a contract are meant to indemni[f]y for the loss suffered through that inducement,’ e.g., damages for foregone opportunities.” Manas, 53 AD3d at 454 (citation omitted).
In Manas v. VMS Assoc., LLC, the First Department concluded that because the “plaintiff did not allege that she sustained any damages that would not be recoverable under her breach of contract cause of action ...., the fraud-based causes of action [were] duplicative of the breach of contract cause of action.” Manas, 53 AD3d at 454. Here, as in Manas, the damages sought by Plaintiffs for their fraud claim are indistinguishable from those sought for Plaintiffs' breach of contract claim of $760,000. That amount is made up of $750,000 (Plaintiffs' total investment in Stanley Capital) and $10,000 (Plaintiffs' reimbursable legal fees incurred in drafting the parties' transaction documents).
Because Plaintiffs' have not introduced evidence of damages with respect to the fraud claim “that would not be recoverable under [their] breach of contract cause of action,” Manas, 53 AD3d at 454, Plaintiffs' first cause of action for fraud must be dismissed as duplicative of the second cause of action for breach of contract.
III.The Third Cause of Action–Tortious Interference with Contract Against Stanley Mankovsky, Margaret Mankovsky, and Margaret Consulting
Plaintiffs describe their tortious interference claim as follows: “[Stanley] Mankovsky, Margaret [Mankovsky] and Margaret Consulting acting together, induced, aided and encouraged Stanley Capital to breach the Letter Agreement. Thus, whether or not they are primarily liable as alter egos of Stanley Capital, they should be found liable for tortious interference with contract.” (Pls.' Mem. at 41.)
Under New York law, “[t]o establish a claim of tortious interference with contract, the plaintiff must show [1] the existence of its valid contract with a third party, [2] defendant's knowledge of that contract, [3] defendant's intentional and improper procuring of a breach, and [4] damages.” ‘ AREP Fifty–Seventh, LLC v. PMGP Assoc., L.P., 115 AD3d 402, 402 (1st Dep't 2014).
Because, as explained above, Plaintiffs failed to establish that a breach of the Letter Agreement occurred, Plaintiffs' third cause of action for tortious interference fails as a matter of law.
IV.The Fifth Cause of Action—Unjust Enrichment Against Margaret Mankovsky and Margaret Consulting
Plaintiffs' unjust enrichment is based on the assertion that “Margaret Consulting and Margaret Mankovsky, acting in concert with Mankovsky and Stanley Capital, received—and essentially stole—$750,000 from Plaintiffs, used it for their personal needs, and Plaintiffs received nothing in return. Thus it would be against equity and good conscience for them to retain Plaintiffs' money without any compensation whatsoever.” (Pls.' Mem. at 42–43.)
“Unjust enrichment is a quasi-contract theory of recovery, and is an obligation imposed by equity to prevent injustice, in the absence of an actual agreement between the parties concerned.” ‘ Georgia Malone & Co., Inc. v. Rieder, 86 AD3d 406, 408 (1st Dep't 2011), aff'd, 19 NY3d 511 (2012). To establish a viable unjust enrichment claim, “[t]he plaintiff must show that [1] the other party was enriched, [2] at plaintiff's expense, and [3] that it is against equity and good conscience to permit [the other party] to retain what is sought to be recovered.” ’ Georgia Malone, 86 AD3d at 408.
However, Plaintiffs' unjust enrichment claim fails for reasons also stated with respect to the breach of contract claim. Plaintiffs maintain that throughout 2009, payments to Margaret Consulting from Stanley Capital's operating account totaled $308,771 and that the Mankovskys' personal expenses paid from that same account totaled $630,096.59. However, Plaintiffs have not established that all of those amounts, or even some portion of them, were paid with Byron Ventures' invested capital rather than from other money deposited into Stanley Capital's Wachovia operating account throughout 2009. As a result, Plaintiffs have failed to establish that the enrichment in question actually occurred at Plaintiffs' expense, such that Plaintiffs' fifth cause of action for unjust enrichment is denied.
V.The Sixth Cause of Action—Breach of Implied Fiduciary Duty Against Stanley Mankovsky
After trial, the Court granted Plaintiffs' motion to conform the pleadings to the evidence, and, in their post-trial brief, Plaintiffs asserted a new cause of action against Defendant Stanley Mankovsky for breach of implied fiduciary duty. See CPLR 3025(c) (“The court may permit pleadings to be amended before or after judgment to conform them to the evidence, upon such terms as may be just including the granting of costs and continuances.”).
Citing an unpublished decision in the case Singer v. Shanghai Jack LLC, Index No. 602144/2008 (Sup.Ct. N.Y. Cnty. Mar. 1, 2012) (Kornreich, J.), Plaintiffs maintain that the nature of the relationship between David Byron and Stanley Mankovsky gave rise to an implied fiduciary relationship, which Mankovsky breached by failing to convey a 46% interest in Stanley Capital. Specifically, Plaintiffs state the following:
Byron and Mankovsky were friends for nearly 10 years before they negotiated the Letter Agreement. Mankovsky was the expert in the mortgage business, and Byron relied on Mankovsky's expertise in making his investment. In the January 16 Decision, the Court dismissed Plaintiffs' breach of fiduciary duty claim on the basis of its (correct) finding that Plaintiffs never actually became shareholders in Stanley Capital and thus no fiduciary relationship existed. However, the facts established at trial are on point with those in Singer and support the existence of an implied fiduciary relationship between Byron and Mankovsky.
(Pls.' Mem. at 44 (citation omitted).) Contrary to Plaintiffs' statements, this Court made no finding that “Plaintiffs never actually becad [¶] me shareholders in Stanley Capital.” Rather, this Court merely stated that “the whole complaint, and all the evidence submitted by plaintiffs, coalesce around the basic allegation that Byron never became a shareholder in Stanley Capital. There could be no fiduciary duty arising from Byron's position as a shareholder if he never became one.” Noryb Ventures v. Mankovsky, 2014 N.Y. Slip Op. 30087(U), at *23 (Sup.Ct. N.Y. Cnty. Jan. 16, 2014).
In other words, that breach of fiduciary duty claim was inconsistent with the evidence submitted in opposition to Defendants' summary judgment motion and Plaintiffs' allegation that Byron Ventures did not become a 46% owner of Stanley Capital-an allegation that at the time was unproven-such that denial of summary judgment was appropriate. Because, as discussed at length above, the evidence adduced at trial shows that upon the execution of the Letter Agreement and tender of consideration, Byron Ventures did become a 46% owner of Stanley Capital, Plaintiffs' claim breach of implied fiduciary duty cannot be sustained.
VI.The Fourth Cause of Action—Accounting Against All Defendants
A.Plaintiffs' Accounting Claim
Plaintiffs' remaining claim and their sole equitable cause of action is for an accounting against all Defendants. In support of this claim, Plaintiffs allege that “defendants have wrongfully misappropriated monies received from plaintiffs and misappropriated profits and revenues received by Stanley Capital with the specific intent not to properly account to plaintiffs therefore.” (Second Amended Compl. ¶ 100.) “Plaintiffs are presently unable to determine the full amount so misappropriated or diverted from the [sic] Stanley Capital.” (Second Amended Compl. ¶ 101.)
Because they lack an “adequate remedy at law” for the alleged wrongful conduct, Plaintiffs seek an accounting “by defendants of all books, records, financial statements, income, revenues, expenses, profits, benefits, losses, liabilities, obligations, distributions and other financial transactions since December 2008.” (Second Amended Compl. ¶¶ 102–03.)
“[T]he remedy of accounting is restitutionary by definition” and the steps involved are that “the plaintiff must establish some basis for the obligation to account, the defendant is ordered to account, and the plaintiff then gets an order directing payment of the sum of money found due.” ' Ederer v. Gursky, 9 NY3d 514, 525 (2007).
As one federal court has explained, “[u]nder New York law, ... an action for an accounting is a two-step process.” Sriraman v. Patel, 761 F.Supp.2d 7, 17 (E.D.NY 2011). “The first step is to establish the right to an accounting.” Sriraman, 761 F.Supp.2d at 17. “[T]he second step is for the Court to true-up” ‘ the accounts to determine that there has been an allocation of assets as “agreed between the partners or required by law.” Sriraman, 761 F.Supp.2d at 17. “In making this determination, the Court can consider [among other things] clerical errors in allocations to the individual accounts; breaches of any partnership agreement or of fiduciary duty or fraud committed by one partner against another; diversion or non-contribution of assets that should be within the partnership; or any other matters necessary to restore the individual accounts to the levels established by the partners' agreement or the law.” Sriraman, 761 F.Supp.2d at 17.
B.Plaintiffs' Entitlement to an Accounting
As a general matter, “[t]he right to an accounting is premised upon the existence of a confidential or fiduciary relationship and a breach of the duty imposed by that relationship respecting property in which the party seeking the accounting has an interest.” ‘ Adam v. Cutner & Rathkopf, 238 A.D.2d 234, 242 (1st Dep't 1997) (quoting Palazzo v. Palazzo, 121 A.D.2d 261, 265 (1st Dep't 1986) ) .
“[S]hareholders in a close corporation, owe fiduciary duties to one another,” which “supports [a] claim for an accounting.” Unitel Telecard Distrib. Corp. v. Nunez, 90 AD3d 568, 569 (1st Dep't 2011). Stanley Capital, owned entirely by Stanley Mankovsky and Byron Ventures, fits the definition of a “close corporation.” Accordingly, Stanley Mankovsky owed a fiduciary duty to Byron Ventures sufficient to support Plaintiffs' cause of action for accounting.
As with the causes of action discussed above, in their claim for an accounting, Plaintiffs seek the recovery of any “invested capital” used in a manner contravening the limitations set forth in the Letter Agreement. Like the invested capital which Plaintiffs seek to recover, the First Department found that an accounting in which “any recovery ... [was] limited to those damages attributable to defendant's failure to apply plaintiffs' deposits to partnership purposes” was also proper. Adam, 238 A.D.2d at 242.
Unlike Plaintiffs' other causes of action, though, the fact that Plaintiffs have been unable to pinpoint the exact dollar amount of any misused funds is not dispositive. Significantly, “[a]n allegation of wrongdoing is not an indispensable element of a demand for an accounting where the complaint indicates a fiduciary relationship between the parties or some other special circumstance warranting equitable relief.” ‘ Adam, 238 A.D.2d at 242 (quoting Morgulas v. Yudell Realty, 161 A.D.2d 211, 213–14 (1st Dep't 1990) ). See also Matthew Adam Props., Inc. v. United House of Prayer for all People of the Church on the Rock of the Apostolic Faith, 2010 N.Y. Slip Op. 32324(U), at *8 (Sup.Ct. N.Y. Cnty. Aug. 25, 2010) (stating that “[c]ommon law provides for the right to an equitable accounting where a fiduciary relationship or some other special circumstance exists”). Indeed, the fact that Plaintiffs cannot pinpoint the amount (if any) of invested capital that was misused underscores the need for an accounting.
Plaintiffs' accounting claim is also different than the other causes of action because it is not limited to the misuse of invested capital. Rather, Plaintiffs also allege that Defendants “misappropriated profits and revenues received by Stanley Capital with the specific intent not to properly account to plaintiffs therefore.” (Second Amended Compl. ¶ 100.) Where an accounting claim is premised upon wrongdoing, there must a confidential or fiduciary relationship and “a breach of the duty imposed by that relationship respecting property in which the party seeking the accounting has an interest.” Adam, 238 A.D.2d at 242.
There is no question that the requisite fiduciary relation existed. Byron Ventures and Stanley Mankovsky, “as shareholders in a close corporation, owe[d] fiduciary duties to one another.” Unitel, 90 AD3d at 569. The breach of that duty occurred as a result of Stanley Mankovsky's denial of Byron Ventures' right to participate in what amounted to distributions of corporate assets.
As stated above, from December 31, 2008, to December 31, 2009, the amount of the stockholder loan to Stanley Mankovsky, which was used to account for the payment of the Mankovsky's personal expenses with Stanley Capital's money, increased from $92,694.13 to $722,790.72—an increase of $630,096.59. (Tr. 536:26–537:6; Ex. 67 at 4.) Along the same lines, from January through November 2009, Stanley Capital paid Margaret Consulting approximately $308,771, allegedly for leads and related services. (Tr. 531:12–21.) Because Stanley and Margaret Mankovsky are 50% co-owners of Margaret Consulting, (Tr. 437:8–15), and because the record at trial showed that the payments to Margaret Consulting were not made for a legitimate business purpose, those payments are also in essence another form of distribution. By contrast, Byron Ventures received no payment from Stanley Capital subsequent to becoming a 46% owner on December 31, 2008.
Where, as here, a shareholder in a close corporation is denied the right to participate in distributions, that denial constitutes a breach of the fiduciary duty owed to that shareholder. See Gjuraj v. Uplift El. Corp., 110 AD3d 540, 541 (1st Dep't 2013) (holding that defendant breached its “fiduciary duty to plaintiff, a minority shareholder” of a closely-held corporation “by, inter alia, distributing profits to ... an employee of the corporation, without making a 15% distribution of profits to plaintiff”). See also Ruttenberg v. Davidge Data Sys. Corp., 215 A.D.2d 191, 192 (1st Dep't 1995) (explaining that in a closely-held corporation, “the rights of a stockholder, includ[e] entitlement to any dividends or distributions which the corporation may declare”). Moreover, such a claim is direct, rather than derivative, because the failure to include Byron Ventures in the distribution of corporate assets harmed Byron Ventures individually and Byron Ventures would receive the benefit of any recovery. See Gjuraj, 110 AD3d at 540 (finding that plaintiff's breach of fiduciary duty claim could be asserted directly because “defendants' freezing him out of the corporation and failing to pay him his share of the profits harmed him individually, and he would receive the benefit of any recovery”).
Apart from the requirements of a fiduciary relationship and breach thereof, “[t]o be entitled to an equitable accounting, a claimant must demonstrate that he or she has no adequate remedy at law.” Unitel, 90 AD3d at 569. The denial of Plaintiffs' other causes of action-all of which were at law, as opposed to at equity—demonstrates that Plaintiffs lack an adequate remedy at law.
Separately, Plaintiffs' repeated requests to Stanley Mankovsky, such as that Stanley Capital “cease the Margaret Consulting arrangement ... [and] stop paying his and Margaret's personal expenses through Stanley Capital,” (Pls.' Mem. at 19), and Stanley Mankovsky's “refus[al] to repay the Invested Capital to Byron,” (Pls.' Mem. at 21), are sufficient to amount to a pre-litigation demand for an accounting. See Kaufman v. Cohen, 307 A.D.2d 113, 124 (1st Dep't 2003) (holding that “plaintiffs' informal demands upon [defendant] to explain what he got out of the deal from which plaintiffs were excluded were sufficient to state a cause of action for an accounting”). See also Non–Linear Trading Co. v. Braddis Assoc., 243 A.D.2d 107, 119 (1st Dep't 1998) (observing that a party's “failure to provide complete information regarding disposition of partnership funds ... support [a] cause of action for an accounting”).
Based on the foregoing, the Court finds that Plaintiffs have established their right to an accounting with respect to whether any of Byron Ventures' invested capital was
used in a manner inconsistent with the restrictions set forth in the Letter Agreement and also regarding the extent to which Byron Ventures was denied the right to participate in the distributions of corporate assets.
C.The Defendants With Respect to Which the Accounting Applies
As shareholders in a closely-held corporation and therefore as fiduciaries to each other, there is no question that Byron Ventures' accounting claim applies to Stanley Mankovsky. See Unitel, 90 AD3d at 569. The question remains, though, whether the accounting claim should apply to Stanley Capital, Margaret Mankovsky, and Margaret Consulting LLC.
Plaintiffs seek not merely to pierce the corporate veil but also to treat Defendants as alter egos of each other. Under New York law, the applicable standards for these theories of recovery are virtually identical. “[P]iercing the corporate veil requires a showing that: (1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff's injury.” Shisgal v. Brown, 21 AD3d 845, 848 (1st Dep't 2005).
Likewise, “to state a claim for alter-ego liability plaintiff is generally required to allege complete domination of the corporation ... in respect to the transaction attacked' and that such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff's injury.” ‘ Baby Phat Holding Co., LLC v. Kellwood Co., 123 AD3d 405, 407 (1st Dep't 2014).
Significantly, “[w]hile complete domination of the corporation is the key to piercing the corporate veil, especially when the owners use the corporation as a mere device to further their personal rather than the corporate business, such domination, standing alone, is not enough; some showing of a wrongful or unjust act toward plaintiff is required.” ‘ Shisgal, 21 AD3d at 848.
As the Court of Appeals has explained, a party seeking to recover on a veil piercing or alter ego theory of liability has a “heavy burden” to show not only domination, but also “that the corporation was dominated as to the transaction attacked and that such domination was the instrument of fraud or otherwise resulted in wrongful or inequitable consequences.” TNS Holdings Inc. v. MKI Sec. Corp., 92 N.Y.2d 335, 339 (1998). “Evidence of domination alone does not suffice without an additional showing that it led to inequity, fraud or malfeasance.” TNS Holdings, 92 N.Y.2d at 339.