Opinion
2007-0270.
Decided May 26, 2010.
COUNSEL FOR PLAINTIFF: POPE SCHRADER, LLP, BY: ALAN J. POPE, ESQ., OF COUNSEL, BINGHAMTON, NY.
COUNSEL FOR DEFENDANTS JOHN W. YOUNG and JOAN H. YOUNG: McDONOUGH ARTZ, P.C., BY: PHILIP J. ARTZ, ESQ., OF COUNSEL, BINGHAMTON, NY.
COUNSEL FOR DEFENDANTS, JAMES BALLUS, JAMES TRIPP and HIDDEN VALLEY DEVELOPMENT, INC: HINMAN, HOWARD KATTEL, LLP, BY: RONALD L. GREENE, ESQ., OF COUNSEL, BINGHAMTON, NY.
This Decision Order addresses three motions.
Plaintiff Alfred Paniccia, Jr. moves for summary judgment on his first cause of action for specific performance compelling the Young defendants to transfer 12 ½ of their 37 ½ shares in Hidden Valley Development, Inc. to Mr. Paniccia with a corresponding notation on Hidden Valley Development, Inc.'s books and records of said ownership interest.
Defendants, John W. Young and Joan H. Young, cross-move for an order permitting them to amend their Answer to add two affirmative defenses, namely a statute of limitations defense and impossibility of performance.
Defendants, James Ballus, James Tripp and Hidden Valley Development, Inc., cross-move for summary judgment dismissing the complaint.
A non-jury trial is scheduled for August 3 and 4, 2010.
BACKGROUND
A. THE CORPORATION
On June 21, 1994, Hidden Valley Development, Inc., ("HVD") incorporated with four shareholders receiving 25 shares each, namely James R. Ballus, James W. Tripp, John W. Young, and Robert L. Matthews.
It is alleged that the shareholders had a verbal agreement that the stock would be restricted and that it could not be transferred to outsiders without the consent of the other stockholders and that a Buy/Sell Agreement would thereafter be reduced to writing. Nevertheless, it is undisputed that although drafts of a Buy-Sell Agreement were circulated in 1996, 2001, and 2006, a formal agreement was never signed.
On October 5, 1994, HVD formally issued stock certificates transferring 25 shares in the corporation to James R. Ballus, James W. Tripp, John W. Young, and Robert L. Matthews. Each of the four certificates contained the typewritten legend: "TRANSFER RESTRICTED — SHAREHOLDERS' AGREEMENT" (Plaintiff's Ex 4).
Soon thereafter, Mr. Matthews decided to withdraw from the corporation. Thus, on December 16, 1994, HVD issued two new stock certificates dividing Mr. Matthews' 25 shares evenly between Mr. Ballus and Mr. Young. These new certificates each reflect 12 ½ additional shares to Mr. Ballus and Mr. Young, are undated, and contain the same legend noted above (Plaintiff's Ex 5). Thus, upon the withdrawal of Mr. Matthews, the existing ownership of HVD was divided as follows: James R. Ballus with 37 ½ shares; James W. Tripp with 25 shares; and John Joan Young with 37 ½ shares.
For ease of reference, the court will refer to John Young, although Joan Young is a named defendant.
On February 1, 1995, HVD purchased property located at 2060 Main Street, Apalachin, New York which included a 238,000 square foot facility and approximately 40 acres. From 1995 through 2002, HVD occupied a small portion of the premises with the remainder vacant and HVD did not make distributions to its shareholders. In 2002, Lockheed Martin began its tenancy and HVD began issuing distributions to shareholders.
B. THE YOUNG-PANICCIA AGREEMENT
In 1994, Mr. Young and Mr. Paniccia became partners in the law firm of Young and Paniccia. As noted above, at this time Mr. Young owned 37 ½ shares of common stock in HVD.
Mr. Young avers that he advised Mr. Paniccia that he had a pre-existing deal with HVD that the firm would perform corporate legal work without charge in exchange for an ownership interest in the corporation. On December 16, 1994, Mr. Young and Mr. Paniccia entered into a written agreement wherein Mr. Young would transfer to Mr. Paniccia one-third of Mr. Young's 37 ½ shares (or 12.5 shares) in HVD in exchange for $12,500 (hereinafter "Young-Paniccia Agreement"). In the words of Mr. Young, "I felt it was only fair to offer Mr. Paniccia a portion of any compensation that I received from Hidden Valley in the form of dividends, distributions, etc." (Young Affidavit sworn to February 12, 2010, ¶ 5). Additionally, Young proposed to Paniccia that he would hold the shares as trustee "[b]ecause all the applications and financial disclosures for the financing [for the property purchase] had been submitted to the lender, adding Plaintiff as an owner at that time would likely create problems for the financing, but that once the purchase and the financing were complete, the stock could be transferred to Plaintiff. In the meantime, John Young explained that he would hold Plaintiff's shares in his name, as trustee. Plaintiff agreed" (Plaintiff's Memorandum of Law dated February 1, 2010, p 2).
The Young-Paniccia Agreement acknowledges Mr. Paniccia's payment of that sum and states, in part, as follows:
NOW, it is hereby understood and agreed:
(1) That Alfred Paniccia, Jr. is the owner in fee of twelve and one-half (12 ½) shares of stock of Hidden Valley Development, Inc.; (2) That said twelve and one-half (12 ½) shares of stock shall be held in the name of John W. Young, as nominee and trustee and he shall hold the stock in his name until the building has been purchased and the financing thereof concluded;
(3) That Alfred Paniccia, Jr. shall be entitled to one-third (1/3) of the net monies received by said John W. Young as a result of any dividend, distribution, advance, salary, or the like paid to him related to the ownership of said stock held in his name for the benefit of said Alfred Paniccia, Jr.;
(4) That said John W. Young, at the earliest opportunity, shall attempt and shall affect a transfer of the stock into the name of said Alfred Paniccia, Jr.;
(5) That said Joan H. Young hereby acknowledges, that in the event of the death of John W. Young, that said Alfred Paniccia, Jr. is the sole owner of twelve and one-half (12 ½) shares of said thirty-seven and one-half (37 ½) shares that said John W. Young is holding the same as a trustee and nominee, on behalf of Alfred Paniccia, Jr.;
(Plaintiff's Ex 1; emphases added).
This litigation arose after the bitter dissolution of the Young Paniccia law firm and was preceded by lengthy litigation between the partners regarding the dissolution of said firm.
On January 11, 2005, the Hon. Walter Relihan issued a final Order regarding the windup of the law firm (Index 2004-1010).
C. PROCEDURAL BACKGROUND
On February 1, 2007, this current litigation was commenced by Mr. Paniccia upon the filing of a Summons Complaint containing six causes of action. The sole focus of this Decision Order relates to the first cause of action which seeks an order granting specific performance compelling the Young defendants to transfer 12 ½ of their 37 ½ shares in HVD to Mr. Paniccia with a corresponding notation on HVD's books and records of said ownership interest.
Defendants Young interposed a joint Verified Answer and Counter-Claims on or about May 30, 2007 containing various affirmative defenses, but notably lacking a statute of limitations defense.
Defendants Ballus, Tripp and HVD interposed a joint Verified Answer on or about September 26, 2007 containing various affirmative defenses, but also notably lacking a statute of limitations defense.
In 2008, plaintiff moved for an order to sever and dismiss the claims and counterclaims of defendant Youngs pursuant to CPLR § 603. On October 1, 2008, this court issued an Order in which plaintiff's motion was denied without prejudice to renewal at or before trial.
Next, on April 3, 2009, this court heard defendants Ballus, Tripp and HVD's motion for summary judgment and dismissal under CPLR §§ 3211 and 3212, as well as plaintiff's cross-motion for a declaratory judgment that the shares were not restricted and for partial summary judgment dismissing any defenses based upon the alleged restriction. This court denied all motions from the bench without prejudice finding questions of fact as to those issues. Thereafter, the parties engaged in discovery including depositions of the principals herein.
Due to various obstacles, it appears a proposed Order memorializing that bench decision was never submitted to the court for signature.
On January 7, 2010, the court held a conference with counsel in which it was agreed that defendants Ballus and Tripp would be released as defendants in their personal capacities, but that HVD would remain as a defendant.
Again, it appears that a proposed Order and Stipulation was never submitted to the court as counsel could not agree on the terms of the Stipulation.
DISCUSSION
I. DEFENDANTS' CROSS-MOTIONS
The court will first address the defense cross-motions to dismiss the complaint.
A. STATUTE OF LIMITATIONS
Defendant Young cross-moves for an order permitting him to amend his Answer with a statute of limitations defense. Defendant Young concedes that his motion is tardy, but argues that plaintiff is now just raising for the first time that Young's obligation to transfer the HVD stock under the Young-Paniccia Agreement arose on February 1, 1995 which justifies granting permission to amend his Answer at this late date.
It is well-settled that the failure to raise the statute of limitations in the answer or by pre-answer motion operates as a waiver of the defense. Further, it is undisputed that defendant Young failed to plead the statute of limitations as a defense in his Answer or make a pre-answer motion to dismiss pursuant to CPLR § 3211. Additionally, the court notes that plaintiff's theory that this action accrued upon the purchase of the building and the completion of the financing was clearly set forth in plaintiff's complaint (Plaintiff's Ex 9, ¶¶ 14 15). As such, defendant's argument that they are now just realizing the possible application of a statute of limitations defense is without merit since the complaint put them on notice of these allegations.
In sum, the court finds no reason to deviate from the well-settled principle that the failure to raise the statute of limitations in the answer or by pre-answer motion operates as a waiver of the defense (CPLR § 3211 [a][5] [e]; CPLR § 3018). Consequently, defendant Young's cross-motion seeking permission to amend his Answer to add a statute of limitations defense is denied. To the extent that defendant HVD's cross-motion may be construed as seeking summary judgment based upon a statute of limitations defense it is denied as well for the same reasons.
In view of this finding, the court need not reach the merits of plaintiff's alternate argument that the limitations period started anew upon Young's acknowledgments and payments.
B. IMPOSSIBILITY OF PERFORMANCE
Defendant Young also cross-moves for permission to amend his Answer to add the defense of impossibility of performance. Defendant Young argues that throughout this litigation, Mssrs. Ballus and Tripp have maintained the position that as majority shareholders that they will refuse to accept Mr. Paniccia as a shareholder. Thus, defendant Young argues, that it will be impossible for the court to direct defendant Young to effectuate a transfer of his shares. The court disagrees. In the first instance, if warranted, this court has the authority to enforce the terms of the Young-Paniccia Agreement and direct defendant Young to transfer his HVD shares to Paniccia. Moreover, this court also has the authority to direct HVD to recognize a lawful shareholder. Defendant Young's cross-motion seeking permission to amend his Answer to add the defense of impossibility of performance is denied.
C. LACHES
Defendant HVD cross-moves for dismissal of the complaint on the grounds that plaintiff's request for the remedy of specific performance is barred by laches.
Defendant HVD raises the defense of laches, in part, so that Mr. Young's failure to raise the statute of limitations argument does not prejudice HVD.
The equitable defense of laches, in a suit for specific performance, is to be considered wholly independent of the Statute of Limitations. Defendant HVD argues that plaintiff has unreasonably and inexcusably delayed in waiting 12 years to bring this action to the prejudice of the defendant and by so doing has worked a disadvantage to defendant. Defendant HVD argues that it should not be compelled to absorb an award of specific performance to enforce a stale breach of contract claim; that plaintiff never notified HVD, Ballus or Tripp of the Young-Paniccia Agreement; that neither Young nor Paniccia disclosed their agreement to government funders in connection with HVD's real estate purchase.
The court finds that the doctrine of laches is not proper under these circumstances. First and foremost, the court finds that HVD has failed to articulate any evidence of prejudice due to plaintiff's delay. HVD's claim that the corporation may have acted quicker in the finalization of a Buy/Sell Agreement had it had known of the Young-Paniccia Agreement is conclusory and speculative. In any event, there is no adequate explanation as to how HVD would have excluded plaintiff as a shareholder after the execution of the Young-Paniccia Agreement without interfering with said contract rights. That having been said, to the extent HVD hints at a potential legal malpractice claim against Young and/or Paniccia those issues, if viable, are not before the court at this time.
In view of the foregoing, the court finds that HVD's cross-motion for summary judgment dismissing the action against it on the basis on the doctrine of laches is denied.
II. PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT ON SPECIFIC PERFORMANCE
Initially, the court notes that plaintiff's motion seeks specific performance as against the Young defendants only, not defendants Ballus, Tripp or HVD. As such, to the extent that defendants Ballus, Tripp and HVD assert that specific performance is not available against a non-party to a contract, the court does not disagree, but does not find that to be plaintiff's goal.
Nor does this motion seek relief regarding the accounting causes of action.
Rather, plaintiff's first cause of action for specific performance is clearly pled solely in terms of compelling the Young defendants to transfer 12.5 shares in HVD to plaintiff.
The consequences of any action or inaction by defendants Ballus, Tripp and HVD in response to a determination by this court will have to await proper application.
The court will now turn its attention to the merits of plaintiff's motion for summary judgment on his first cause of action for specific performance against the Young defendants.
The issue presented is whether a verbal HVD shareholder agreement to restrict the transfer of HVD stock or, in the alternative, a verbal agreement to agree on such a restriction existed which would prevent the requested relief. Quite simply, the court finds that when, as here, parties agree to leave material terms of an agreement to be negotiated in the future, the preliminary agreement (the agreement to agree) is unenforceable ( Miranco Contr., Inc. v Perel , 29 AD3d 873 [2nd Dept 2006]; Breuer v Feder , 27 AD3d 509 [2nd Dept 2006]). In short, the court finds that there was no agreement nor an agreement to agree that HVD shares would be restricted. To the extent the parties may have attempted to form an agreement to agree, the terms of those negotiations are irrelevant to the determination here. Consequently, the court finds it is not necessary to address the parties' parenthetical arguments relating to the theoretical existence of an agreement or agreement to agree, namely the arguments relating to an unreasonable restraint upon alienation and violations of UCC § 8-204.
III. MISCELLEANOUS ISSUES
Defendants also raise the argument that plaintiff has not yet established a breach of the underlying Young-Paniccia Agreement. The court disagrees. The evidentiary proof is undisputed that the "building has been purchased and the financing thereof concluded" as required by the Young-Paniccia Agreement. Nor does the court read any ambiguities in the Young-Paniccia Agreement. Thus, to the extent that defendant Young raises the principle that ambiguities in said Agreement should be construed against the draftsman, the court need not reach that issue in view of its finding that no such ambiguities exist in the first instance.
Next, defendants Ballus, Tripp and HVD allege that questions remain whether plaintiff knew about HVD shareholders' desires (even if not formalized) to restrict the transfer of shares and that neither plaintiff nor Young should profit from their alleged failure to draft the proper shareholder agreement. Even if the court were to find questions relative to plaintiff's knowledge of the desire for a restrictive agreement, such awareness is not a defense to plaintiff's action against Young. As noted earlier, to the extent that defendants Ballus, Tripp or HVD may have other remedies regarding the legal work performed by Paniccia and/or Young those issues are not before this court.
Finally, defendants Ballus, Tripp and HVD also raise the argument that specific performance is not proper because plaintiff has an adequate remedy at law, namely a money judgment. Plaintiff contends that the rights of a shareholder are greater than the right of an individual to merely receive dividends or other corporate distributions. The court agrees. An order for a money judgment for past or future payments does not equate to giving plaintiff all the rights of stock ownership.
CONCLUSION
For the reasons stated:
(1)Plaintiff's motion for summary judgment on his first cause of action for specific performance against defendants Young is GRANTED;
(2)Defendants Youngs' cross-motion to amend their Answer to add two affirmative defenses, namely a statute of limitations defense and impossibility of performance is DENIED;
(3)Defendants Ballus, Tripp and HVD's cross-motion for summary judgment dismissing the action is DENIED.
This decision constitutes an order of the court. The mailing of a copy of this Decision and Order by this court shall not constitute notice of entry. The court will schedule a conference with counsel to discuss the remaining issues, namely the accounting causes of action and counterclaims.
It is so ordered.