Opinion
INDEX NO. 157641/2014
05-04-2020
ROBERT ROMANOFF, as beneficiary and trustee of THE SHERYL ROMANOFF IRREVOCABLE GRANTOR TRUST, NICHOLAS ROMANOFF, an infant, as beneficiary of THE SHERYL ROMANOFF IRREVOCABLE GRANTOR TRUST and in his capacity as a shareholder of NEW ROADS REALTY CORP., by his parent and natural guardian ROBERT ROMANOFF, each derivatively on behalf of THE SHERYL ROMANOFF IRREVOCABLE GRANTOR TRUST, derivatively on behalf of NEW ROADS REALTY CORP., derivatively on behalf of GHC NY CORP., Plaintiffs, v. THE TRUSTEES OF THE SHERYL ROMANOFF IRREVOCABLE GRANTOR TRUST, by ROBERT ROMANOFF and FRANK PLATT as Trustees; SHERYL ROMANOFF, individually and as Executor of the estate of GERALD ROMANOFF, MICHAEL A. ZIMMERMAN; 55 GANS JUDGMENT LLC, 55 GANS LENDER LLC; GRIFFON GANSEVOORT HOLDINGS LLC, GHC NY CORP., FRANK PLATT, NEW ROADS REALTY CORP., JOHN AND JANE DOES "1" through "10" and ABC CORPS. "1" through "10," being the fictitious names of individuals and entities whose real names and identities are presently unknown to plaintiff, Defendants.
NYSCEF DOC. NO. 421 MOTION DATE 10/11/2019, 10/11/2019, 10/11/2019, 10/11/2019 MOTION SEQ. NO. 005 006 007 008
DECISION and ORDER
The following e-filed documents, listed by NYSCEF document number (Motion 005) 168, 169, 170, 171, 172, 173, 174, 175, 176, 177, 178, 179, 180, 181, 182, 183, 184, 185, 186, 187, 188, 189, 190, 191, 192, 193, 194, 195, 196, 197, 198, 199, 200, 201, 202, 203, 226, 227, 229, 230, 231, 290, 291, 292, 293, 294, 295, 296, 297, 298, 299, 300, 301, 302, 303, 304, 305, 308, 309, 358, 406 were read on this motion to/for DISMISS. The following e-filed documents, listed by NYSCEF document number (Motion 006) 206, 207, 208, 209, 210, 211, 212, 213, 214, 215, 216, 217, 218, 219, 220, 221, 222, 223, 224, 228, 306, 312, 313, 314, 315, 316, 317, 318, 319, 320, 321, 322, 323, 324, 325, 326, 327, 328, 329, 330, 331, 332, 333, 334, 335, 336, 337, 338, 339, 340, 341, 342, 343, 344, 345, 346, 347, 348, 349, 350, 351, 352, 353, 354, 359, 405, 407 were read on this motion to/for DISMISS. The following e-filed documents, listed by NYSCEF document number (Motion 007) 232, 233, 234, 235, 236, 237, 238, 239, 240, 241, 242, 243, 244, 245, 246, 247, 248, 249, 250, 251, 252, 253, 254, 255, 256, 257, 258, 259, 260, 261, 262, 263, 264, 310, 355, 360, 361, 362, 363, 364, 365, 366, 367, 368, 369, 370, 371, 372, 373, 374, 375, 376, 378, 399, 401, 403, 412 were read on this motion to/for DISMISSAL. The following e-filed documents, listed by NYSCEF document number (Motion 008) 265, 266, 267, 268, 269, 270, 271, 272, 273, 274, 275, 276, 277, 278, 279, 280, 281, 282, 283, 284, 285, 286, 287, 288, 289, 311, 356, 379, 380, 381, 382, 383, 384, 385, 386, 387, 388, 389, 390, 391, 392, 393, 394, 395, 396, 397, 398, 400, 402, 404, 408, 409, 410, 411, 413 were read on this motion to/for DISMISS.
Hon. James E. d'Auguste
This decision and order consolidates four pending motions. Collectively, the motions seek dismissal of the entire lawsuit. In motion sequence number 005, defendants Griffon Gansevoort Holdings LLC (Griffon), 55 Gans Judgment LLC (Gans Judgment), and 55 Gans Lender LLC (Gans Lender) (collectively, the Gans defendants) seek an order dismissing the third, fifth, and sixth causes of action as against them. In motion sequence number 006, defendants Sheryl Romanoff (Sheryl), individually and in her capacity as executor of the estate of Gerald Romanoff (Gerald), GHC NY Corp (GHC), and New Roads Realty Corp. (New Roads) move for an order dismissing the first amended complaint (complaint) as against them. In motion sequence number 007, defendant Frank D. Platt (Platt) asks that the action be dismissed against him in its entirety. In motion sequence number 008, defendant Michael A. Zimmerman (Zimmerman) moves for an order which dismisses the complaint as against him and enjoins plaintiff from initiating additional lawsuits against him. All of the motions seek sanctions against plaintiffs. Finally, in response to motion sequence 006, plaintiffs cross-move to convert these pre-answer motions to summary judgment motions and hold an immediate trial.
Initially, the Court notes this case was marked "disposed" in September 2017. It is clear the disposition was inadvertent, as the Court and parties have continued to move forward with this lawsuit. Solely for the purposes of these motions, the Court restores the case to active status. In addition, for the reasons below, the Court grants the motions, denies the cross motion, and dismisses the complaint.
Factual Background
The facts underlying this case are set forth in great detail in the decisions resolving Motion Sequence No. 002 in this action (NYSCEF Doc. No. 317) and the decision resolving Motion Sequence No. 004 (NYSCEF Doc. No. 424). Therefore, the Court provides only a statement of those facts that are necessary to the disposition of the current motions.
New Roads, a Delaware company, was the sole shareholder of GHC, and Gerald had sole control over New Roads. Gerald and his spouse Sheryl each owned 49.5% of the common stock of New Roads. Nicholas Romanoff (Nicholas), Robert's son and their grandson, owned the remaining 1%. In turn, GHC owned the property located at 55 Gansevoort Street in Manhattan (the Property). Over the years, GHC, New Roads, and Gerald had taken out or guaranteed millions of dollars in loans. As a result of these guarantees, there were two mortgages on the Property. When the debtors were unable to repay their debts, the Gans defendants obtained judgments against them in New Jersey and sought their enforcement in New York.
Gerald had transferred his 49.5% share of New Roads to his wife in an effort to keep the stock from his creditors. Sheryl put the stock into two trusts: The Sheryl Romanoff Irrevocable Grantor Trust (the IGT), which contained 49.5% of the shares of the common stock of New Roads, and the Sheryl Romanoff Grantor Retained Annuity Trust (the GRAT), which initially contained 49.5% of the New Roads shares. Robert and Zimmerman had been the co-trustees of both trusts, and Robert was a lifetime beneficiary. In 2012, the GRAT ceased to exist and the corpus transferred to the IGT.
The Gans defendants sought and obtained an order which set aside the transfers as fraudulent (55 Gans Judgment LLC v Romanoff, Sup Ct, NY County, Feb. 6, 2013, Mendez, J., index No. 106008/2011 [the 55 Gans Judgment order], appeal dismissed 123 AD3d 452 [1st Dept 2014], lv dismissed 26 NY3d 1073 [2015]). The order effectively denuded the IGT, which by this time contained 99% of the shares of the New Roads stock.
On June 25, 2012, the Gans defendants settled their disputes with Gerald, Sheryl, GHC, and New Roads (NYSCEF Doc. No. 238 [the Settlement]). Under the Settlement, the Gans defendants forgave all mortgage obligations, released Gerald's debts, released their judgments against the debtors, satisfied an unrelated judgment against GHC, and made certain payments to GHC and its attorney. In exchange, the debtors transferred the Property to the Gans defendants. The 55 Gans Judgment order rejected Robert's attempt to intervene in the action and oppose the settlement, and Robert's appeals on behalf of the trusts were dismissed because the co-trustee did not take part in or support the litigation (see 55 Gans Judgment LLC v Romanoff, 123 AD3d 452 [1st Dept 2014]). Romanoff I
Robert and Nicholas have attempted to undo the transfer and obtain substantial damages against defendants on several other occasions. There have been three other cases in the New York State Supreme Court, Civil Division, New York County. In 2011, Robert, as co-trustee of the GRAT and the IGT, commenced the first of these actions against Gerald and Zimmerman (Romanoff v Romanoff, Sup Ct, NY County, index No. 650152/2011 [Romanoff I]). Robert added claims and amended the caption so as to include allegations in his capacity as beneficiary of the trusts. Among other things, Robert alleged that Gerald's conduct, including his failure to pay his and New Roads' creditors, had harmed both trusts and, by extension, harmed Robert.
Upon Zimmerman's application, Justice Anil Singh, who presided over the lawsuit, allowed defendant Platt to replace Zimmerman as co-trustee (see Romanoff I, NYSCEF Doc. No. 57 [Notice of Appeal; transcript of decision resolving motion sequence 003] at 32). Based on Justice Mendez's ruling in the 55 Gans Judgment order that the transfers of New Roads into the trust were void, the Court dismissed the complaint without prejudice. The Court also found that Robert lacked the capacity to sue without the participation of the co-trustee (id.).
In a subsequent order, the Court rejected the plaintiffs' motion to amend the complaint (Romanoff I, NYSCEF Doc. No. 448 [March 8, 2017 Order, resolving motion sequence number 007]). It found that Robert and Nicholas lacked standing to bring derivative claims on behalf of New Roads or GHC, and that they were collaterally estopped from arguing to the contrary. They could not bring derivative claims on behalf of the trusts, the Court found, because the 55 Gans Judgment order essentially stripped the trusts bare, and the decision in motion sequence 003 in Romanoff I was law of the case. Robert could not sue derivatively on behalf of GHC and New Roads because of the ruling in another action that Robert's status as vice president did not give him this power. The Court additionally rejected Robert's position that the trusts still existed, ruling that collateral estoppel applied. Nicholas could not sue derivatively on behalf of New Roads and GHC because he raised the same claims in two other pending actions. The Court also did not allow amendments to assert fraud against Gerald and Sheryl or malpractice or breach of professional and fiduciary duty against Zimmerman. The Court dismissed several causes of action against Gerald's estate. Significantly, the Court noted:
"The court is troubled by Robert's insistence on relitigating issues he has already lost multiple times in this and other courts. . . . Robert and Nicholas are both precluded or barred from bringing the claims in the [proposed second amended complaint] based on prior court orders stretching back over four years. Indeed, as set forth above, Robert fails to state why the new arguments he is now raising were unavailable to him on any of the numerous chances he has had to relitigate these issues"(id. at 26). Romanoff II
In 2012, Robert commenced a second action, this time in his capacity as co-trustee and sole beneficiary of the trusts, and on behalf of Nicholas in his capacity as shareholder of New Roads (Romanoff v Griffon Gansevoort Holdings LLC, Sup Ct, NY County, index No. 652705/2012 [Romanoff II [NYCEF Doc. No. 12]). The plaintiffs asserted claims against the Gans defendants, Gerald, and August C. Venturini and his firm Venturini & Associates, which represented GHC and Gerald in the negotiations that led to the settlement of the foreclosure judgments. The action also included Michael Shah (Shah) and his company, DelShah capital, LLC (collectively, Shah), the purchasers of the property, as defendants. The complaint accused the Gans defendants and Shah of colluding with Gerald to obtain the property. Plaintiffs filed a notice of pendency in Romanoff II on September 14, 2012 (id. [NYSCEF Doc. No. 11]).
Justice O. Peter Sherwood presided over this lawsuit. He ruled that Robert had no standing as co-trustee in light of Justice Mendez's ruling in the 55 Gans Judgment order. He stated that because Gerald had the full authority to control New Roads, Robert also had no standing on behalf of his son. Accordingly, he dismissed the action as against the Gans and Shah defendants. Justice Sherwood dismissed the complaint as to the attorney and law firm that represented Gerald. The judge also granted the other parties' motions for dismissal, noting that the beneficiary of a trust cannot sue a third party (id. [NYSCEF Doc. No. 193]). As the case was dismissed, the notice of pendency was vacated as well. Plaintiffs filed a notice of appeal in May of 2013 (id. [NYSCEF Doc. No. 209]), following the April 2013 filing of the orders with notice of entry. Subsequently, however, on February 19, 2014, they withdrew their notice of appeal (id. [NYSCEF Doc. No. 213]). Romanoff III
On February 7, 2014, Robert, on behalf of Nicholas, commenced a shareholder derivative action (Business Corporation Law [BCL] § 626), in Nicholas' capacity as a shareholder of New Roads. The defendants in the action were Gerald, Sheryl, Zimmerman, the Gans defendants, GHC, the IGT, Platt, and New Roads (Romanoff v Romanoff, Sup Ct, NY County, index No. 151160/2014 [Romanoff III] [NYCEF Doc. No. 1]). In the action, which is based on the same facts as the earlier cases, Nicholas alleged that New Roads and GHC breached their fiduciary duties to their shareholders, and that Gerald and Sheryl diverted money from these companies to themselves. Nicholas asserted that title to the property was transferred for a purported price of $15,599,089 although GHC actually owed the Gans defendants $27 million and the property had a value of over $34 million. Nicholas stated that, through the IGT, he had secured agreements from two different investors to buy the property for $34 million and $35 million, respectively, and GHC and Gerald ignored their duties to the shareholders by rejecting these offers. Further, Nicholas alleged that the Gans defendants and Zimmerman aided and abetted GHC, New Roads, and Gerald. The complaint sought $7 million in damages, an accounting and subsequent award in damages for the funds Gerald and Sheryl allegedly diverted to themselves, a rescission of the property transfer, and a removal of Gerald from his positions with New Roads and GHC.
Nicholas filed a notice of pendency in this action as well (id. [NYSCEF Doc. No. 2]). Justice Singh, who at the time presided over the lawsuit, granted a motion to cancel the notice of pendency (id. [NYSCEF Doc. No. 94 (Decision and Order resolving motion sequence number 001)]). The judge found "that the rule against successive Notices of Pendency applie[d] to this case" (id. [NYSCEF Doc. No. 97 ] at 18, lines 25-26) because Romanoff II involved essentially the same parties and issues.
In a subsequent ruling, Justice Singh dismissed plaintiff's cause of action for rescission as against the Gans defendants, who made the motion (id. [NYSCEF Doc. No. 317 (Decision and Order resolving motion sequence number 002)]). The judge determined that damages would provide plaintiff with an adequate remedy. In addition, the judge granted the motion based on in pari delicto, or the principle that courts do not involve themselves in disputes between two wrongdoers. Justice Singh reasoned that because GHC and New Roads received a benefit from the settlement agreement, and because Gerald's actions as an officer in those companies could be imputed to them, GHC and New Roads were also culpable and therefore could not assert claims against Gerald. The judge rejected the argument that collateral estoppel barred the rescission claim, however, because the action was dismissed for lack of standing. Justice Singh made the same ruling with respect to plaintiff's shareholder's action in an order dated February 3, 2015 (id. [NYSCEF Doc. No. 427 (Decision and Order resolving motion sequence numbers 004, 005, 006, and 007)]). In this order, Justice Singh dismissed as untimely all breach of fiduciary duty claims relating to the fact that Gerald purportedly encumbered GHC with $15 million in debt, but ruled that claims relating to the settlement agreement were timely. The Court dismissed the claims against Zimmerman and Platt; dismissed the claim for an accounting as against Sheryl, and as against Gerald with respect to GHC, but not with respect to New Roads; dismissed the rescission claim as against the remaining defendants and dismissed the right of redemption claim because the property already was transferred and plaintiff lacked standing; dismissed the cause of action which sought to remove Gerald as officer of the companies; and allowed plaintiff to amend the complaint only insofar as it sought to add claims of alleged wrongdoing which took place after February 7, 2011. In an order dated October 22, 2015, Justice Singh dismissed all claims asserted against the Gans defendants based on prior rulings and denied plaintiff's attempt to relitigate his claims (id. [NYSCEF Doc. No. 473 (Decision and Order resolving motion sequence number 010)]). Ultimately, in a decision filed on November 30, 2017 (id. [NYSCEF Doc. No. 555]), the case was dismissed based on plaintiff's failure to post security for costs pursuant to this Court's order dated September 14, 2017 (id. [NYSCEF Doc. No. 540; see also NYSCEF Doc. No. 545 (ordering the dismissal)]). Other Lawsuits
In addition to the above, Robert commenced a bankruptcy proceeding in the Southern District of New York in 2012 (Matter of GHC NY Corp., US BR Court, SDNY, Case No. 12-14031 [REG], Gerber, J., 2012) and an action in Chancery Court in Delaware in 2016 (Romanoff v New Roads Realty Corp., Court of Chancery of Delaware, Civil Action No. 12375-VCS, Slights, J., 2016). Both courts admonished plaintiffs for litigating issues that already had been raised and decided in the New York State courts. Finally, Robert had a recently dismissed qui tam action in this Part relating to the valuation of the Property for tax purposes, against Gerald's estate, Sheryl, and other defendants (State of New York ex rel. Romanoff v Shah, 101432/2014, Sup Ct, NY County, D'Auguste, J. ["Romanoff v Shah"]). The Current Lawsuit
Plaintiffs filed this action on August 4, 2014. In the first amended complaint ("the complaint"), which is the subject of the current motions (NYSCEF Doc. No. 162), plaintiffs are Robert Romanoff, in his alleged capacity as beneficiary and trustee of the IGT and the GRAT; Nicholas, as a beneficiary of the IGT and a shareholder in New Roads, and derivatively on behalf of the IGT, New Roads, and GHC. The defendants are Romanoff and Platt, in their capacity as trustees of the IGT and the GRAT; Sheryl in her own capacity and as executor of Gerald's estate; Zimmerman; and the Gans defendants. The complaint asserts that "the claims in this lawsuit are distinguishable from any claims brought or sought to be brought in prior litigation" (id. ¶ 7) because, according to the complaint, claims arising out of the management of the trusts survive the trusts themselves. The complaint suggests that because prior actions asserting claims against the trustees did not include these particular derivative claims, plaintiffs are entitled to bring this action (see id. ¶ 12).
The complaint asserts the following causes of action:
1. By Robert and Nicholas, for a declaratory judgment regarding the ownership of the shares of New Roads;
2. On behalf of the beneficiaries of the trust, for damages against the trustees based on legal malpractice, breach of contract and of fiduciary duty, and professional negligence and misconduct;
3. On behalf of the beneficiaries of the trust, for over $40 million in damages against the trustees based on breach of fiduciary duty, on the same grounds that plaintiffs asserted in Romanoff III, and on misrepresentation, fraud, conspiracy, and numerous other purported wrongs;
4. "triple derivative claims" (id. at 44) against Gerald's estate;
5. On behalf of the beneficiaries of the trust, for damages against all defendants based on fraud and conspiracy;
6. Rescission of the sale of the property, under BCL § 909 or Delaware General Corporate Law [DGCL] § 271;
7. Against Zimmerman for disloyalty; and
8. Against Platt for disloyalty.
Plaintiff filed a notice of pendency on the Property in this action on August 25, 2014 (NYSCEF Doc. No. 3). Both of the prior notices of pendency had been vacated prior to this filing. Justice Singh, who presided over this lawsuit at the time, heard oral argument on several applications on December 16, 2014, including the motion to vacate the notice of pendency. The Court found the prohibition against successive notices of pendency barred the challenged notice here, because "[w]hile the dressing has changed, the substance of the relief sought by the Romanoff plaintiffs is rescission and the right of redemption" as in the prior pertinent actions (NYSCEF Doc. No. 102 at 27, lines 11-13). Although the court rejected the request for sanctions, it warned the litigants that "if a fourth Notice of Pendency is filed in this action which requires additional motion practice, I will grant attorneys' fees and sanctions against the Romanoff plaintiffs and their counsel" (id. at 28, lines 12-15).
The death of Gerald Romanoff in April 2015 resulted in a stay of this case. On November 28, 2018, the Court granted plaintiffs' motion to vacate the stay and substitute Sheryl, in her capacity as executor of Gerald's estate, in place of Gerald. Plaintiffs filed the complaint on March 7, 2019 (NYSCEF Doc. No. 162). In response, defendants made the pre-answer motions that are before the Court, challenging this new pleading.
Analysis
Initially, the Court addresses plaintiffs' cross motion to the Romanoffs' motion, motion sequence no. 006. The cross motion seeks to convert the motion into one for summary judgment, and then to decide summary judgment or direct an immediate trial (see NYSCEF Doc. No. 317). The Court denies this motion (CPLR 3212 [a]; see Drezin v New Yankee Stadium Community Benefits Fund, Inc., 94 AD3d 542, 543 [1st Dept 2012]). "A motion for summary judgment may not be made before issue is joined and the requirement is strictly adhered to" (Sonny Boy Realty, Inc. v City of New York, 8 AD3d 171, 172 [1st Dept 2004] [internal quotations and citations omitted], affd 4 NY3d 858 [2005]; Enriquez v Home Lawn Care & Landscaping, Inc., 49 AD3d 496, 497 [2d Dept 2008], lv dismissed 11 NY3d 851 [2008]). Moreover, a cross motion to convert a motion to dismiss into one for summary judgment motion is not procedurally proper. Further, a summary judgment motion by a party is also premature if issue has not been joined. As the Romanoff defendants point out, Justice Singh denied plaintiffs' earlier motion for partial summary judgment on this basis (NYSCEF Doc. No. 102, at 28, lines 16-22).
The Court also rejects plaintiffs' position that motion sequence no. 005 violates the single motion rule. This rule is not triggered when the movants direct their motion to the amended complaint (see Sage Realty Corp. v Proskauer Rose LLP, 251 AD2d 35, 38 [1st Dept 1998]; Shelley v Shelley, 180 Misc 2d 275, 282 [Sup Ct, Westchester County 1999]). Moreover, the Gans defendants withdrew their prior summary judgment motion, motion sequence no. 004, shortly after plaintiffs asserted this argument (NYSCEF Doc. No. 307). In addition, the Court rejects plaintiffs' argument that the failure to attach a copy of the complaint requires dismissal of the Romanoff defendants' motion, motion sequence no. 006. Contrary to plaintiffs' contention, the Romanoff defendants filed the amended complaint (NYSCEF Doc. No. 320).
In its consideration of the four motions to dismiss, the Court reviews the amended complaint under the applicable standard. That is, it "construe[s] the complaint liberally, accepting as true the facts alleged, and according plaintiff the benefit of every possible inference" (Plaza PH2001 LLC v Plaza Residential Owner LP, 98 AD3d 89, 99 [1st Dept 2012]). This does not preclude dismissal on the grounds of collateral estoppel or res judicata, where the arguments in question have been or could have been resolved either in the case at hand or in other lawsuits based on the same facts.
Collateral estoppel and res judicata protect litigants from repetitive lawsuits, promotes judicial economy, and preserves the integrity of the judicial system (Paramount Pictures Corp. v Allianz Risk Transfer AG, 31 NY3d 64, 73 [2018] [Paramount]). Collateral estoppel "precludes a party from relitigating in a subsequent action or proceeding an issue clearly raised in a prior action or proceeding and decided against that party or those in privity, whether or not the tribunals or causes of action are the same" (Wilson v Dantas, 29 NY3d 1051, 1062 [2017] [internal quotation marks and citation omitted]). The doctrine is a subset of the broader doctrine of res judicata (see Wilson v Dantas, 29 NY3d at 1062). Res judicata bars all claims "arising out of the same transaction or series of transactions as a claim that was previously resolved on the merits and which the party opposing preclusion had a full and fair opportunity to litigate" (Platon v Linden-Marshall Contr. Inc., 176 AD3d 409, 410 [1st Dept 2019] [internal quotation marks and citation omitted]). Res judicata applies even to claims that were not litigated if they were or could have been raised previously (Wilson, 29 NY3d at 1062; see Munroe v Park Ave. S. Mgt., 99 AD3d 426, 427 [1st Dept 2012]). For this reason, a judgment on the merits in a prior action between the same parties bars litigation under a different legal theory (see Dickerson v United Way of N.Y. City, 113 AD3d 452, 452-453 [1st Dept 2014]). Further, if the losing party does not appeal an adverse judgment in a prior case between the same parties, that party cannot assert the claim in another lawsuit (see Cohen v Glass, 173 AD3d 580, 580 [1st Dept 2019]).
1. Motion Sequence No. 005
The Court grants motion sequence no. 005 in its entirety. As the Gans defendants argue, plaintiffs lack standing to raise the trust-based claims they assert against them in the third and fifth causes of action. The issue of standing, the Gans defendants point out, has been resolved in several prior orders within and outside of the New York State courts. They cite the First Department decision in Romanoff III, which found that Romanoff I collaterally estopped Robert from pursuing trust-based claims, and that due to Nicholas' privity with Robert, collaterally estoppel precluded Nicholas as well (Romanoff III, 148 AD3d at 617). In Romanoff I, Justice Singh emphasized in 2017 that "both Robert and Nicholas do not have standing to bring these claims on behalf of the trusts in any capacity, and Robert has no standing to bring the derivative claims on behalf of the corporations" (Romanoff I, NYSCEF Doc. No. 185 [2017 NY Slip Op 30461[U], *16 (March 8, 2017)]). That order further found that there was no standing because the trusts had been terminated, and that this also meant that plaintiff lacked standing to sue derivatively on behalf of New Roads (id. at 16-17). The Gans defendants also annex copies of the oral argument transcripts from Romanoff v New Roads Realty Corp. (Chancery Ct, DE, Civ Action 12375 -VCS, April 10, 2017, Slights, Vice Chancellor ["Slights Transcript"] [NYSCEF Doc. No. 195]), in which the Vice Chancellor adheres to the New York State court rulings. Further, the trust beneficiaries have no standing to sue regarding property that was in the trusts (see Matter of Larchmont Pancake House v Board of Assessors and/or Assessors of the Town of Mamaroneck, 33 NY3d 228, 240 [2019]; Buechel v Bain, 275 AD2d 65, 65 [1st Dept 2000]).
As Griffon correctly notes, the sixth cause of action for rescission also must be dismissed based on collateral estoppel. Justice Singh dismissed plaintiffs' rescission claim in Romanoff III. The trial court ruled that adequate monetary damages were available, noting that plaintiffs' asserted goal had been to sell the Property at a higher value. It stated that plaintiffs' assertions to the contrary were conclusory and without any evidentiary basis (Romanoff III, NYSCEF Doc. No. 317). The First Department affirmed the decision, agreeing that "[t]he remedy of rescission is unavailable because money damages are available and will make plaintiff whole" (Romanoff III, 148 AD3d at 616). In addition, the First Department agreed with Justice Singh that "Gerald's conduct, as an officer and director of GHC and New Roads, is imputed to the corporations. While the other defendants are alleged to have aided and abetted Gerald's conduct, those defendants' culpability is at most equal to that of Gerald" (Romanoff III, 148 AD3d at 615-616). Accordingly, the principle of in pari delicto also bars New Roads from suing Gerald.
The Gans defendants have also established that there are independent grounds for the dismissal of the third and fifth causes of action. The third cause of action states that if the trusts or their beneficiaries own part or all of New Roads, and if plaintiffs are entitled to compensation for defendants' alleged wrongdoing, then defendants are liable for the diminishment in the value of the property due to defendants' misconduct. As already stated, even if the trusts still existed, Robert and Nicholas would not be able to assert this claim because they had no interest in the trusts' property and no power to control their assets. The fifth cause of action, which alleges that the Gans defendants colluded with the other defendants to defraud the trusts, also fails due to collateral estoppel. As the Gans defendants note, plaintiffs' argument was rejected by the Gans Judgment order as well as by a Delaware court order involving another lawsuit of plaintiffs. It notes that the May 14, 2012 ruling in Romanoff I denied Robert's motion to enjoin Gerald from acting on behalf of New Roads and GHC and that, as Robert did not perfect his appeal of this order, the ruling in that motion is final.
2. Motion Sequence No. 006.
For the same reason that the Court dismisses the trust-based claims against the Gans defendants, it dismisses those that plaintiffs assert against the Romanoff defendants. The Romanoff defendants also stress that Robert previously submitted a sworn statement that if the Court voided the transfer of New Roads into the trust, the trusts themselves would be voided (Romanoff III, NYSCEF Doc. No. 425 [2015 NY Slip Op 30156 [U] (February 3, 2015), affd 148 AD3d 614 [1st Dept 2017])]).
In addition to the other arguments supporting dismissal based on standing, Robert lacks standing as co-trustee absent the participation of the co-trustee (Romanoff II, NYSCEF Doc. No. 193). As stated, the First Department ruled on this issue, citing collateral estoppel (see Romanoff III, 148 AD3d at 617). The claims against the Romanoff defendants, moreover, have been specifically adjudicated in their favor. In Romanoff I and Romanoff II, the claims against Sheryl, both in her individual capacity and in her capacity as executor of Gerald's estate, were dismissed on the merits, and these rulings are final and binding (see Burke v Crosson, 85 NY2d 10, 15 [1995]; Rivera v Skanska USA Civ. Northeast, Inc., 179 AD3d 455, 455 [1st Dept 2020]). Therefore, res judicata applies (citing AmBase Corp. vPryor Cashman Sherman & Flynn, LLP, 35 AD3d 174, 175 [1st Dept 2006], lv dismissed, 8 NY3d 891 [2007]). Even if plaintiffs did not raise the current arguments before, they are barred because, under res judicata, claims that could have been raised in the other litigations also cannot be asserted again (citing Carol v Madison Plaza Apts. Corp., 137 AD3d 453, 453 [1st Dep't 2016]). As the Romanoff defendants assert, the allegations in the current complaint closely track plaintiffs' pleadings in several of the other lawsuits.
The fifth cause of action attempts to ignore or collaterally challenge Justice Mendez's decision in the 55 Gans Judgment action, and neither route is legally viable. Any arguments in this claim that the defendants were co-conspirators in an attempt to defraud plaintiffs also must fail, as they have been rejected before. The sixth cause of action also fails for this reason. In particular, the Romanoff defendants point to the statement in the complaint that asserts that "if it is determined herein that the Trusts or former Trusts, or former beneficiaries still hold all or some of the shares of New Roads, notwithstanding that certain transfers were determined to be void, then the plaintiffs would be shareholders of New Roads" (NYSCEF Doc. No. 164 ¶ 351). For the same reasons as above, this matter has been resolved. The sixth cause of action, for rescission, must be dismissed against the Romanoff defendants for the same reasons they are dismissed against the Gans defendants.
3. Motion Sequence No. 007
This motion is by Platt, who succeeded Zimmerman as co-trustee of the GRAT and the IGT. To a large extent, Platt echoes the arguments set forth in motion sequence nos. 005 and 006, and the Court grants this motion for the same reasons as above. As Platt emphasizes and the Court has ruled above, in pari delecto bars Nicholas from suing on behalf of the corporation. Prior orders have concluded that Gerald had complete control of New Roads and therefore his alleged misconduct is imputable to New Roads (e.g., Romanoff III, 148 AD3d at 615). Plaintiffs did not successfully challenge any of the rulings, as Platt notes.
The claims that the complaint asserts against him individually are also barred. Principally, the complaint as against Platt alleges that he negligently failed to assert certain critical arguments in the 55 Gans Judgment order (NYSCEF Doc. No. 234 ¶¶ 179-182); that he engaged in active collusion with the other defendants (id. ¶ 183, 338-340); and that he wrongfully refused to join in Robert's litigations in his capacity as co-trustee and otherwise did not act to preserve the trusts (e.g., id. ¶¶ 224, 280, 287, 290). However, in the 55 Gans Judgment action, Robert sought to remove Platt as co-trustee due to the same purported collusion and negligence that Robert had asserted when he objected to the appointment of Platt as co-trustee (NYSCEF Doc. No. 243 ¶¶ 6, 10, 76-81 [Robert aff; originally filed in the 55 Gans Judgment action]). Justice Mendez found no basis for removal (NYSCEF Doc. No. 248 [Feb 14, 2014 order resolving motion sequence no. 005; originally filed in the 55 Gans Judgment action]).
In addition, in Romanoff II, Justice Sherwood dismissed the claims of self-dealing and breach of fiduciary duty as against Platt (Romanoff II, NYSCEF Doc. No. 193]). In Romanoff III, when Justice Singh dismissed the case, this also included claims relating to Platt's purported breach of fiduciary duty and his purported collusion [Romanoff III, NYSCEF Doc. No. 427]). Thus, collateral estoppel applies.
4. Motion Sequence No. 008
In this motion, Zimmerman states that the claims plaintiffs assert against him must also be dismissed. The Court agrees with Zimmerman. Zimmerman cites Matter of Branciforte v Spanish Naturopath Socy. (217 AD2d 619, 620 [2d Dept 1995]) and State of New York v Philip Morris Inc. (308 AD2d 57, 66 [1st Dept 2003]) for the proposition that this Court lacks subject matter jurisdiction to review matters that the prior cases decided. According to Zimmerman, this bars plaintiffs' trust-based claims, plaintiffs' position that they have standing to assert these claims, and their argument that the ownership of the shares of New Roads is in doubt after the 55 Gans Judgment order. As relates to Zimmerman in particular, the principle bars plaintiffs' second and seventh causes of action for breach of his duty as co-trustee. The Court need not address the question of whether subject matter jurisdiction or res judicata and collateral estoppel bar the claims asserted against Zimmerman, because the underlying principles are the same. For the same reasons as above, res judicata and collateral estoppel bar the causes of action, resolve the issue of plaintiffs' lack of standing, and prevent plaintiffs from alleging that Zimmerman breached his fiduciary duty.
Further, as Zimmerman points out, prior court orders dismissed all claims asserted against Gerald and Sheryl Romanoff. Therefore, any claim that Zimmerman colluded with Gerald and Sheryl fall as well. He also he lacked the close relationship with the Romanoff defendants that is necessary in an aiding and abetting claim (Abe v New York Univ., 169 AD3d 445, 448 [1st Dept 2019], lv dismissed 34 NY3d 1089 [2020]; Art Capital Group, LLC v Neuhaus, 70 AD3d 605, 607 [1st Dep't 2010]). Further, as Zimmerman states, because the trusts no longer exist, there is no existing contractual relationship with the trustees. Moreover, plaintiffs have not shown any evidence - in this or the other lawsuits - that Zimmerman knowingly colluded in any purported wrongdoing (Kaufman v Cohen, 307 AD2d 113, 125 [1st Dept 2003] [stating that knowing collusion cannot be asserted in conclusory fashion]; see also Epiphany Community Nursery Sch. v Levey, 171 AD3d 1, 11 [1st Dept 2019] [citing Kaufman]). Similarly, plaintiffs have not pleaded fraud with sufficient specificity.
Like the Romanoff defendants, Zimmerman correctly argues that Robert cannot sue on behalf of the trust, even if it were still in existence, absent the participation or consent of the co-trustee (the 55 Gans Judgment order, 123 AD3d at 452-453). Plaintiffs cannot avoid this rule by asserting that if Platt is a necessary plaintiff, the Court should forcibly join him as a party. This subverts the purpose of CPLR 1001 (a), which adds a plaintiff as a necessary party only if he or she "might be inequitably affected by a judgment." If plaintiffs' argument were correct, then a single trustee could always commence a lawsuit over the objection of his or her co-trustees through this tactic. Even if this were appropriate, upon Platt's refusal to sue himself and the other defendants, he would be added as a defendant (id.). Platt already is a defendant in this action, so the application is moot. Finally, as Zimmerman urges, plaintiffs cannot show that his alleged misconduct damaged them, because Zimmerman was no longer co-trustee when the transfer of the Property took place. The purported better offers plaintiffs received for the Property occurred after the transfer took place and were both speculative and meaningless.
5. Plaintiffs' chief arguments.
The Court already has addressed several of plaintiffs' arguments above. In addition, plaintiffs' other arguments lack merit. The Court addresses some of the chief arguments here. First, plaintiffs state that the Court should not be bound by Justice Singh's prior rulings because the judge rendered his decisions based on incorrect representations by defendants. This argument lacks merit because (1) plaintiffs raised this point before Justice Singh and it did not change the outcome, and (2) the proper remedy would have been an appeal of the order or a motion to reargue. Indeed, plaintiffs have appealed and moved to reargue several adverse decisions, and have not succeeded. There is no place for a reiteration of the arguments here.
Second, plaintiffs state that because of defendants' purported misrepresentations, they cannot assert collateral estoppel here. The Court finds this to be without merit - among other things, for the same reasons as above. Third, according to plaintiffs, the allegations in the qui tam lawsuit further support their position, and the Court must wait until the qui tam litigation is resolved before it addresses the instant claims. They quote Delshah Group LLC v Javeri (No-09-Civ-6909 [KBF], May 28, 2013, Forrest, J.), an unrelated case, in which the judge stated that Michael Shah, who is not part of this lawsuit but is a defendant in the qui tam action, was not credible. They state that even though Nicholas' BCL § 909 and DGCL § 271 causes of action have been dismissed by two other justices, this does not preclude Robert from asserting the same claims on his own behalf. The qui tam lawsuit alleges that defendants along with other parties not in this lawsuit committed tax fraud in misrepresenting the value of the Property. This has no relevance to the trust-based claims, the alleged breach of duty by Zimmerman and Platt, or the applicability of in pari delecto. Moreover, as stated, Delshah Group LLC involves neither the current parties nor the current transactions.
Fourth, plaintiffs claim that even if the trusts were voided, the question of what happens to the shares of New Roads remains unresolved. They claim that their lack of standing as beneficiaries or on behalf of the trusts does not defeat their standing to assert claims based on the lost value of the trust property, New Roads. They make similar arguments regarding their standing as victims injured by the dissolution of the trusts. According to plaintiffs, their claims here arise from the destruction of the trusts rather than from the trusts and therefore involve new issues and are not precluded by res judicata or collateral estoppel. These arguments utterly disregard all prior court rulings, including Justice Mendez's determination in the 55 Gans Judgment order and Justice Singh's ruling that neither Nicholas nor Robert can assert claims on behalf of the trust in any capacity or based on any new arguments.
Fifth, with respect to the Romanoff defendants, plaintiffs assert that estoppel bars Sheryl from seeking dismissal here because this is allegedly inconsistent with her alleged contention, in Romanoff I, that plaintiff could not amend the complaint there due to the existence of those claims in this case. The Court rejects this argument because, notwithstanding that position, the independent grounds of collateral estoppel and res judicata bar the claims.
Sixth, plaintiffs argue that debtor-creditor mandates that the Court rule that plaintiffs own the shares of New Roads because in the Settlement with the Gans defendants Sheryl renounced her right to the shares. Because the Property's value allegedly exceeded the Romanoff defendants' debt, plaintiffs argue, and because the Gans defendants ultimately settled the 55 Gans Judgment action, the difference in value must be returned to the former beneficiaries of the trusts. Plaintiffs assert that because Platt did not assert arguments on behalf of the other defendants, Platt somehow takes a position adverse to the others' interests. Again, these matters already have been resolved and plaintiffs' new arguments are not pertinent to the current claims. As defendants have said, plaintiffs did not show that the purported higher offers for the Property preceded the transfer or that they would have gone forward. Moreover, Justice Mendez rejected Robert's application to participate in the 55 Gans Judgment action, and he and Nicholas lack the power to collaterally challenge the procedures including the Settlement, here.
All of plaintiffs' arguments are based on a fundamental mischaracterization of res judicata. Their attempts to recharacterize the claims or suggest that the parties are now suing in a different capacity fail because the claims could have been raised in the earlier actions or in the first complaint here, but plaintiffs did not do so (see Abe, 169 AD3d at 449). Sanctions
Finally, the Court turns to the question of sanctions, which all defendants request in their respective motions. Under NYCRR § 130-1.1 (a), courts have the discretion to award the costs of litigation including reasonable attorney's fees where these expenses result from the frivolous conduct of the opposing party. Courts may impose the sanctions against the party, the party's attorney, or both (NYCRR § 130-1.1 [b]). Frivolous conduct, for this purpose, either lacks legal merit and is unsupported by any reasonable argument, intends to delay the litigation or to harass or maliciously injure the opponent, or makes false assertions (NYCRR § 130-1.1 [c]).
Including the bankruptcy and Delaware actions, this is the sixth case plaintiffs have brought that challenges the transfer of the Property and the alleged mishandling of the trusts. As defendants note, plaintiffs have pursued these claims long after rulings in this and other cases have held that the claims lack a legal basis (see Matter of Jiggetts v New York City Human Resources Admin., 156 AD3d 552, 553 [1st Dept 2017], lv dismissed 33 NY3d 1050 [2019]; Matter of Rudin, 34 AD3d 371, 372 [1st Dept 2006]). Moreover, plaintiffs continue to litigate in the face of admonishments from the judges who have presided over these actions. They note that in Romanoff I, Justice Singh warned plaintiffs from relitigating issues and warned plaintiffs' counsel, who is also the attorney of record here, that he would consider imposing sanctions upon further motion practice in that lawsuit (see Romanoff I, NYSCEF Doc. No. 448 [March 8, 2017 Order]). In the current case, Justice Singh warned that he would impose attorney's fees and sanctions if plaintiffs filed a fourth Notice of Pendency (NYSCEF Doc. No. 102 at 28, lines 12-15). These threats of sanctions have not kept plaintiffs from continuing in these litigious, harassing activities or from clogging the courts. Therefore, although courts generally are reluctant to impose sanctions against litigants, it grants them here, and awards motions costs as well as the attorney's fees incurred by defendants in litigating these four motions. It declines to grant the more prohibitive relief Zimmerman requests - enjoining plaintiffs from suing him in the future - but admonishes plaintiffs that further lawsuits arising out of the same set of facts, whether or not on the same legal theory, will be subject to sanctions. Plaintiffs should be guided accordingly.
Conclusion
For the reasons above, it is
ORDERED that motion sequence no. 005 is granted in its entirety; and it is further
ORDERED that motion sequence no. 006 is granted in its entirety, and the cross motion is denied; and it is further
ORDERED that motion sequence no. 007 is granted in its entirety; and it is further
ORDERED that motion sequence no. 008 is granted except to the extent that it seeks injunctive relief against plaintiffs; and it is further
ORDERED that this matter is referred to the Referee Clerk, who is directed upon filing of a copy of this Order to place this action on the appropriate referee's calendar to hear and decide the amount due in costs and the attorney's fees associated with these motions, in accordance with the guidelines set forth in this order, and to enter a Judgment thereon. 5/4/2020
DATE
/s/ _________
JAMES EDWARD D'AUGUSTE, J.S.C.