Opinion
Index No. 656673/2022
10-14-2023
Gail Stamler, Plaintiff, v. East Side Associates and MICHAEL APPELL, Defendants.
Law Offices of Steven I. Hilsenrath, Valley Stream, NY (Steven I. Hilsenrath of counsel), for plaintiff. Toptani Law PLLC, New York, NY (Edward Toptani of counsel), for defendants.
Unpublished Opinion
Law Offices of Steven I. Hilsenrath, Valley Stream, NY (Steven I. Hilsenrath of counsel), for plaintiff.
Toptani Law PLLC, New York, NY (Edward Toptani of counsel), for defendants.
GERALD LEBOVITS, J.
The following e-filed documents, listed by NYSCEF document number (Motion 002) 42, 43, 45, 46, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 61, 63, 64, 65 were read on this motion for DISMISSAL.
Plaintiff, Gail Stamler, a part owner of East Side Associates (ESA), is suing defendants ESA and its sole general partner, Michael Appell. Plaintiff asserts six causes of action. In the first, second, and third causes of action, plaintiff respectively alleges a breach of fiduciary duty against both defendants, a breach of fiduciary duty for tax year 2021, and a breach of fiduciary duty against Appell. (See NYSCEF No. 1 at 7-12.) Plaintiff asks in all these causes of action for compensatory damages in an amount to be determined. (Id.) Plaintiff brings the fourth cause of action for an accounting, the fifth cause of action for monetary damages against defendants, and the sixth cause of action to dissolve ESA and appoint a temporary receiver. (See NYSCEF No. 1 at 12-16.)
Defendants now move, under CPLR 3211 (a) (7), to dismiss the first, second, third, and fifth causes of action in the complaint. (NYSCEF No. 42.)
Plaintiff cross-moves as follows:
(1) To compel defendants to serve a verified answer to plaintiff's summons and verified complaint (Id. at ¶ [b]) or, alternatively, under CPLR 3215, to declare defendants to be in default due to their failures to answer or otherwise respond to plaintiff's summons and verified complaint and setting up an inquest to assess the amount in damages owed to plaintiff. (Id. at ¶ [c].)
(2) Under CPLR 3211 (d), in the event this court grants defendants' motion to dismiss, to direct a continuance of defendants' motion on the basis that defendants have failed to disclose to plaintiff all relevant facts within defendants' sole knowledge. (Id. at ¶ [d].)
(3) Under CPLR 3025, to amend the summons and verified complaint once defendants provide all disclosure. (Id. at ¶ [e].)
(4) Under CPLR 3212, for summary judgment, declaring defendants' alleged breach of fiduciary duty in the first, second, and third causes of action to plaintiff, as a matter of law. (Id. at ¶ [f].)
(5) Under Partnership Law §§ 42-44 and 99 (1) (b), to direct defendants to produce a true and full immediate accounting of all things and affairs affecting defendant ESA; and, under Partnership Law § 63 (c) and (f), to dissolve defendant ESA and appoint a temporary receiver to protect and distribute ESA's assets.
DISCUSSION
I. Defendants' Motion to Dismiss
a. First Cause of Action: Breach of Fiduciary Duty with Regard to Disclosure of Financial Information
A motion to dismiss under CPLR 3211 (a) (7) may be granted when the complaint consists only of bare legal conclusions and no factual allegations supporting an element of the claim. (See Connaughton v Chipotle Mexican Grill, Inc., 29 N.Y.3d 137, 141 [2017].) Defendants argue that plaintiff failed to plead a claim for breach of fiduciary duty sufficiently, because plaintiff has not identified any applicable law that gives rise to such any fiduciary relationship. (NYSCEF No. 43 at 9.) Defendants also argue that plaintiff failed to satisfy the pleading requirements of CPLR 3016 (b), such as failing to specify the nature of the alleged distribution or the time they were made. (Id. at 10.) Defendants contend that plaintiff's allegations describe alleged harm to ESA, not wrongdoing experienced in her individual capacity, and thus that plaintiff has confused derivative claims with individual claims. (Id. at 12.)
"To state a claim for breach of fiduciary duty, plaintiff must allege that (1) defendant owed them a fiduciary duty, (2) defendant committed misconduct, and (3) they suffered damages caused by that misconduct." (New York Mar. & Gen. Ins. Co. v Wesco Ins. Co., 213 A.D.3d 461, 462 [1st Dept 2023] [internal quotation marks omitted].) Although "a corporation owes no fiduciary duty to its shareholders," (Tahari v 860 Fifth Ave. Corp., 214 A.D.3d 491, 492 [1st Dept 2023]), the general partner owes a fiduciary duty to the limited partners. (See Pritsker v Oppenheimer Acquisition Corp., 178 A.D.3d 429, 430 [1st Dept 2019].) Under Partnership Law § 42, partners have a fiduciary duty to make full disclosure to one another of everything they know that affects the partnership.
Under CPLR 3016 (b), "a cause of action sounding in breach of fiduciary duty must be pleaded with particularity." (New York Mar. & Gen. Ins. Co. v Wesco Ins. Co., 213 A.D.3d 461, 462 [1st Dept 2023] [internal quotation marks omitted].) To satisfy pleading requirements, a plaintiff need only provide "sufficient detail to inform defendants of the substance of the claims." (Kaufman v Cohen, 307 A.D.2d 113, 120 [1st Dept 2003].)
Here, plaintiff is a limited partner, and Appell is the sole general partner. (NYSCEF No. 48 at 2.) In the first cause of action, plaintiff alleges that Appell willfully breached the fiduciary duty to plaintiff in failing to report to plaintiff all financial statements, failing to make distributions to plaintiff, failing to report to plaintiff any information or documents regarding any loans, and other breaches. (NYSCEF No. 1 at ¶¶ 22-24.) Plaintiff concludes that she suffered "substantial financial loss" by Appell's actions. (Id.) Plaintiff alleges facts satisfying all three elements of this cause of action.
In determining whether a claim is derivative or direct, Delaware law provides a framework recognized in New York law. (See Yudell v Gilbert, 99 A.D.3d 108, 114 [1st Dept 2012].) A court should consider "(1) who suffered the alleged harm (the corporation or the stockholders); and (2) who would receive the benefit of any recovery or other remedy (the corporation or the stockholders individually." (Id.) Here, plaintiff asserts a direct claim, because she seeks redress for an injury she suffered herself, not for an injury the business entity suffered. Under Partnership Law §§ 106-121, any unlawful refusal to provide limited partners with the records they request, or failure to make distributions to them would be a wrong against them individually in their capacity as limited partners. These provisions give plaintiff, in her individual capacity, a right to request records that the general partner is required to keep on file. Defendants' motion to dismiss plaintiff's first cause of action is denied.
b. Second Cause of Action: Breach of Fiduciary Duty with Regard to Tax Year 2021
Plaintiff alleges a cause of action regarding defendants' breach of fiduciary duty for tax year 2021. Plaintiff claims that defendants failed to report all financial statements to plaintiff. (NYSCEF No. 1 at ¶ 31.) Plaintiff also claims that defendants failed to make distributions to plaintiff for the 2021 tax year. (Id. at ¶ 32.) For the reasons above, both allegations are direct claims. However, plaintiff also alleges that defendants made unsound investments of ESA assets. (Id. at ¶ 33.) This is a derivative claim. Because this cause of action mingles direct and derivative claims, the cause of action is subject to dismissal. Defendants' motion to dismiss plaintiff's second cause of action is granted.
c. Third Cause of Action: Breach of Fiduciary Duty Against Michael Appell
In plaintiff's third cause of action, she alleges that defendant Appell breached his fiduciary duty by engaging in acts outside the ordinary course of ESA's business, including using ESA's assets without all the other partners' knowledge and consent, and making investment of ESA property for his personal benefit or his family members' benefit. (NYSCEF No. 1 at ¶¶ 39-41.) These are derivative claims. Plaintiff makes a direct claim that Appell did not make distributions to her. (NYSCEF No. 1 at ¶ 43.) Again, because this cause of action combines direct and derivative claims, defendants' motion to dismiss is granted.
d. Fifth Cause of Action: Monetary Damages
Plaintiff's fifth cause of action seeks damages against defendants for the above-mentioned breaches of fiduciary duty, including defendants' failure to make distributions to plaintiff. Given that plaintiff's first through third causes of action, sounding in fiduciary duty, also seek monetary relief, this court agrees with defendants that the fifth cause of action is subject to dismissal as duplicative. (See NYSCEF No. 43 at 9.) This court agrees.
II. Plaintiff's Cross-Motion
Plaintiff cross-moves under CPLR 3211 (d) for a continuance to conduct further discovery, and seeks leave to amend under CPLR 3025 (d), following that discovery. This branch of plaintiff's cross-motion is denied. CPLR 3211 (d) provides that where "facts essential to justify opposition may exist but cannot then be stated, the court may... order a continuance to permit further affidavits to be obtained or disclosure to be had." Given that plaintiff's second and third causes of action comingle derivative claims and direct claims, and plaintiff's fifth cause of action is duplicative, this court does not see a basis to permit plaintiff to obtain further discovery relating to financial information and documentation about defendant ESA-nor to permit filing of an amended complaint thereafter.
Plaintiff cross-moves to compel defendants to serve a verified answer or be declared in default under CPLR 3215. But the filing of this motion to dismiss tolled defendants' time to answer pending a decision on the motion. (See CPLR 3211 [f].) Given the court's denial in part of the motion to dismiss, as discussed above, defendants are entitled to 10 days to answer following service of notice of entry. To the extent that plaintiff's cross-motion seeks to compel defendants to answer before that 10-day period has run, that branch of the cross-motion is denied.
Plaintiff also cross-moves under CPLR 3212 for summary judgment declaring defendants' alleged breach of fiduciary duty in the first, second, and third causes of action. This court agrees with defendants that plaintiff's request is premature, given that issue has not yet been joined through the filing of an answer. (See Miller v Schreyer, 257 A.D.2d 358, 361 [1st Dept 1999]; Milk v Gottschalk, 29 A.D.2d 698, 698 [3d Dept 1968].)
Plaintiff cross-moves to require defendants to produce a true and full immediate accounting of all things and affairs affecting defendant ESA under Partnership Law §§ 42-44 and § 99 (1) (b). Plaintiff argues that defendants had a statutory duty to report and account to plaintiff, but defendants have failed to do that despite plaintiff's written demands. (See NYSCEF No. 56.) Plaintiff further cross-moves under Partnership Law § 63 (c) and (f) to dissolve ESA and to appoint a temporary receiver. Plaintiff alleges that defendants materially breached their fiduciary duties to plaintiff and that dissolving ESA and appointing a temporary receiver are appropriate remedies to protect and distribute any and all defendants' assets.
Defendants contend that Partnership Law §§ 42-44, 63 (c) and 63 (f) are inapplicable to limited partners and that plaintiff has not included any analysis with respect to the legal issues surrounding her requests or the standards by which a court should make determinations with respect causes of action for an accounting, dissolution, and appointment of a temporary receiver. (NYSCEF No. 61 at 18.) Defendants also contend that plaintiff's request for an accounting, dissolution of ESA, and appointment of a temporary receiver is really a request for summary judgment that should be denied as premature. (Id.)
Under Partnership Law § 10 (2), the statute applies to limited partnerships except to the extent that the statutes relating to such partnerships are inconsistent. Thus, the Partnership Law provisions relied on by plaintiff do apply to limited partners. But plaintiff's cross-motion for accounting is, in substance, a request for summary judgment: Her fourth cause of action, as pleaded, demands judgment directing an accounting. (NYSCEF No. 1 at 17.) The same is true of plaintiff's cross-motion for dissolution and appointment of a receiver. These requests are therefore premature for the same reason as plaintiff's cross-motion for summary judgment on the first, second, and third causes of action.
Accordingly, it is
ORDERED that the branch of defendants' motion seeking dismissal of plaintiff's first cause of action is denied; and it is further
ORDERED that the branches of defendants' motion seeking dismissal of plaintiff's second, third, and fifth causes of action are granted; and it is further
ORDERED that defendants shall serve and file an answer responding to plaintiff's first and fourth causes of action within 10 days of service of a copy of this order with notice of its entry; and it is further
ORDERED that plaintiff's cross-motion is denied.