VAYS v. 139 EMERSON PLACE, LLC

Full title: FRED VAYS, individually and as a member of Sycamore Development Group, LLP…

Court: Supreme Court of the State of New York, New York County

Date published: Feb 19, 2010

2010 N.Y. Slip Op. 30379 (N.Y. Sup. Ct. 2010)

Opinion

400833/08.

February 19, 2010.

DECISION/ORDER

HON. DORIS LING-COHAN, J.S.C.

In this commercial contract action, two groups of defendants move separately for summary judgment to dismiss the complaint (motion sequence numbers 001 and 002, respectively). For the following reasons, motion sequence number 001 is granted in part and denied in part, and motion sequence number 002 is granted.

BACKGROUND

The Parties

The individual litigants in this action are plaintiff Fred Vays (Vays), a New York State licensed contractor, and co-defendants George Dellapa (Dellapa) and Elissa Winzelberg (Winzelberg), a New York State licensed attorney and architect, respectively. See Notice of Motion (motion sequence number 001), Dellapa Affirmation, ¶ 4. These three individuals are equal (i.e., 33 1/3%) shareholders in corporate co-defendants 139 Emerson Place, LLC (Emerson) and Sycamore Development Group, LLC (Sycamore), both of which are New York State limited liability corporations. Id., ¶ 2; Hirshowitz Affirmation, ¶ 5; Exhibit E. Vays, Dellapa and Winzelberg formed Emerson and Sycamore in 1999. Id.; Dellapa Affirmation, ¶ 2. Emerson was formed to develop, own and operate a residential apartment building located at 139 Emerson Place in the County of Kings, City and state of New York (the Emerson building). Id., ¶¶ 2-4. Their success in developing the Emerson building caused Vays, Dellapa and Winzelberg to form Sycamore for the purpose of engaging in future real estate development projects. Id., ¶ 5. On March 1, 1999, the three executed an operating agreement (the Sycamore operating agreement) that provides, in relevant part, that:

Article One: Formation

Section 1.1. Members. Upon the execution of this Agreement, Fred Vays, Elissa Winzelberg and George Dellapa shall be Members of the Company.

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Article Eight: Management of the Company

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Section 8.2. Unanimous Consent of the Members. Unless required by law, the following actions shall require the unanimous consent of all Members:

(i) Acquire or enter into any contract for the purchase of an Interest in a Project:

(ii) Sell, exchange, convey, trade, surrender, release, abandon or otherwise dispose of all or a substantial part of the assets of the Company, for cash, securities or other property, and upon such terms and conditions as the Members deem advisable, appropriate, or convenient and to be in the best interests of the Company.

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Section 8.5. Fiduciary Duty, All members shall have a fiduciary duty to the Company and to the other Members to act in all matters relating to the Company in good faith. . . .

Section 8.6. Breach of Duty. If a Member as determined by a vote of a majority of Members breaches their fiduciary duty or any provision of this Agreement and such breach has not been cured within thirty (30) days after [by] the Member (the "Breaching Member"), then the Company (in addition to all rights and remedies it may have under law or equity) may withhold any Distributions otherwise payable to such Breaching Member until such Breaching Member is in full compliance with the terms and conditions of this Agreement. In addition, the Company may require the Breaching Member to withdraw ("expulsion") from the Company under the terms of Article 10. Such Breaching Member, to the extent permitted by law, shall be liable for any damages such breach causes the Company.

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Schedule A Member LLC Interest

Fred Vays 33.33% Elissa Winzelberg 33.33% George Dellapa 33.33%

Id.; Exhibit E.

In 2001, the opportunity arose to develop another residential apartment building located at 970 Kent Avenue in the County of Kings, City and state of New York (the Kent building). Id.; Dellapa Affirmation, ¶ 11. Dellapa and Winzelberg wished to pursue this project, while Vays did not. Id., ¶ 19. Nonetheless, Dellapa and Winzelberg concluded an agreement with co-defendant CPCR Opportunities Fund, LLC (CPCR)¹ pursuant to which these entities would form a new limited liability corporation, 970 Kent Avenue Associates, LLC (Kent) to purchase and renovate the Kent building. Id., ¶ 14. The original members of Kent were CPCR, as 75% shareholder, and Sycamore, as 25% shareholder. Id., Exhibit H. On August 7, 2001, however, Dellapa formed another limited liability corporation, Sycamore Kent Group, LLC (Sycamore Kent), and thereafter, on October 18, 2001, Dellapa transferred Sycamore's 25% interest in Kent to Sycamore Kent. Id., ¶¶ 16-17; Exhibits I, J. Vays, nonetheless, objected to Sycamore's involvement and to not being kept informed.

1 Defendant CPC Resources, Inc. (CPC) is a New York State corporation, and is "a member" of CPCR. See Notice of Motion (motion sequence number 002), Kumro Affidavit, ¶ 6.

Prior Proceedings

Vays commenced this action on September 19, 2007, by serving a summons and complaint that sets forth causes of action for: 1) an accounting with respect to Emerson and Sycamore (against Dellapa, Winzelberg, Emerson and Sycamore); 2) breach of the Sycamore operating agreement (against Dellapa, Winzelberg and Sycamore); 3) a declaratory judgment (against all defendants); and 4) an accounting with respect to Kent (against Dellapa and Winzelberg). Id.; Exhibit A. One group of defendants, comprising Dellapa, Winzelberg, Emerson, Sycamore and Sycamore Kent answered on November 28, 2007. Id.; Exhibit B. Another group of defendants, comprising CPCR, CPC and Kent, answered on November 20, 2007. Id.; Exhibit C. The first group of defendants moved for summary judgment to dismiss the second, third and fourth causes of action (motion sequence number 001). Thereafter, the second group of defendants moved for summary judgment to dismiss the third cause of action (motion sequence number 002).

DISCUSSION

When seeking summary judgment, the moving party bears the burden of proving, by competent, admissible evidence, that no material and triable issues of fact exist. See e.g. Winegrad v New York Univ. Med. Ctr., 64 NY2d 851 (1985); Sokolow, Dunaud, Mercadier Carreras LLP v Lacher, 299 AD2d 64 (1st Dept 2002). Once this showing has been made, the burden shifts to the party opposing the motion to produce evidentiary proof, in admissible form, sufficient to establish the existence of material issues of fact which require a trial of the action. See e.g. Zuckerman v City of New York, 49 NY2d 557 (1980); Pemberton v New York City Tr. Auth., 304 AD2d 340 (1^st Dept 2003). Here, the proponents of the first motion are entitled to a partial summary judgment, and the proponents of the second motion are entitled to summary judgment dismissing the complaint as against them.

The First Motion

As previously mentioned, the first motion seeks summary judgment dismissing Vays's second, third and fourth causes of action. The second cause of action alleges that Dellapa, Winzelberg and Sycamore breached the Sycamore operating agreement. The proponent of a breach of contract claim must plead the existence and terms of a valid, binding contract, its breach, and resulting damages. See e.g. Gordon v Dino De Laurentiis Corp., 141 AD2d 435 (1^st Dept 1988). Here, the complaint specifically alleges that, although the Sycamore operating agreement required Dellapa and Winzelberg to obtain the unanimous consent of all Sycamore's members before involving Sycamore in a development project, Dellapa and Winzelberg failed to obtains Vays' consent when they used Sycamore to acquire an interest in Kent, and that these actions constituted a breach and resulted in damages. See Notice of Motion (motion sequence number 001), Exhibit A, ¶¶ 52-59. Vays has presented a copy of the Sycamore operating agreement to support his claim, although he does not seek summary judgment on his breach of contract claim at this juncture. Id.; Exhibit E; this makes out a prima facie case of breach of contract.

Defendants nonetheless argue that Vays's breach of contract claim must be dismissed, because "[g]iven the lack of Vays' consent, [Sycamore] never became a lawful member of [Kent]," and, indeed, Sycamore's "brief 2001 involvement in [Kent] was null and void." See Memorandum of Law in Support of Motion (motion sequence number 001), at 6-7. To support this argument, defendants cite two trial court decisions, Overhoff v Scarp, Inc. ( 12 Misc 3d 350 [Sup Ct, Erie County 2005]) and TIC Holdings, LLC v HR Software, Acquisition Group, Inc. ( 194 Misc 2d 106 [Sup Ct, NY County 2002], affd 301 AD2d 414 [1^st Dept 2003]), that both found that, pursuant to the Limited Liability Corporation Law, any LLC transactions that had been entered into in violation of the LLC's operating agreement were "void ab initio." Plaintiff does not address this argument in his opposition papers. The court, however, notes that the Appellate Division, First Department's, affirmance of TIC Holdings, LLC v HR Software, Acquisition Group, Inc. specifically found that "[t]he motion court correctly determined that the purported asset transfer . . . was void because the transfer of a substantial portion of plaintiff's assets was . . . not authorized under plaintiff's operating agreement or Limited Liability Company Law § 402 (d) [emphasis added]." 301 AD2d at 414-415. Thus, defendants have correctly stated the law. Consequently, because defendants' purported acquisition of an interest in the Kent building by Sycamore clearly contravened section 8.2 of the Sycamore operating agreement, that transaction was likewise void ab initio, as a matter of law. For the same reason, Sycamore's purported October 18, 2001 transfer of its interest in the Kent building to Sycamore Kent was also void ab initio.

However, despite a determination that the above transactions are void ab initio, summary judgment of dismissal is not warranted as to the second cause of action for breach of contract as to defendants Dellapa, Winzelberg, Emerson, Sycamore and Sycamore Kent. The Appellate Division, First Department, has specifically held that claims for breaches of an LLC's operating agreement are legally cognizable, even where the results of such a breach would be a void transaction. Bischoff v Boar's Head Provisions Co., Inc., 38 AD3d 440 (1^st Dept 2007); see also Cesario v Absolute Plus Management, LLC, 2007 WL 3165066 (Sup Ct, NY County 2007). As previously noted, Vays has presented evidence that adequately supports his breach of contract claim. Accordingly, the branch of defendants' motion that seeks dismissal of Vays's second cause of action is denied.

Vays's third cause of action seeks a judgment "declaring him and Sycamore as a one third (1/3) owner of [the Kent building]." See Notice of Motion (motion sequence number 001), Exhibit A, ¶ 79. Declaratory judgment is a discretionary remedy which may be granted "as to the rights and other legal relations of the parties to a justiciable controversy whether or not further relief is or could be claimed." CPLR 3001; see e.g. Jenkins v State of N.Y. Div. of Hous. Community Renewal, 264 AD2d 681 (1st Dept 1999). Here, neither partys' memoranda sets forth any legal argument directed at Vays's declaratory judgment claim. Nonetheless, because, as detailed above, Sycamore's purported purchase of an interest in the Kent building was an act that was void ab initio, as a matter of law, Vays is not entitled to the requested declaratory judgment regarding ownership of the Kent building. Accordingly, that branch of defendants' motion that seeks summary judgment dismissing Vays's third cause of action is granted.

Vays's fourth cause of action is for an accounting from Dellapa and Winzelberg with respect to Kent. See Notice of Motion (motion sequence number 001), Exhibit A, ¶ 83. This equitable claim is normally available as of right to a member of an LLC against a managing member. See e.g. KSI Rockville, LLC v Eichengrun, 305 AD2d 681 (2d Dept 2003). Here, again, neither party's brief sets forth any argument regarding this claim. However, because the court has already determined that Sycamore's purported acquisition of an interest in Kent was void ab initio, Vays is not entitled to an accounting as regards Kent, either. Accordingly, the branch of defendants' motion that seeks summary judgment dismissing Vays's fourth cause of action is granted.

The Second Motion

The proponents of the second motion, CPCR, CPC and Kent, are only named as defendants in Vays's third cause of action for a declaratory judgment. See Notice of Motion (motion sequence number 001), Exhibit A, ¶ 79. Because the court has already determined that Vays is not legally entitled to the declaration that he seeks, CPCR, CPC and Kent's motion for summary judgment to dismiss the complaint as against them (motion sequence number 002) is granted in full.

DECISION

ACCORDINGLY, for the foregoing reasons, it is hereby

ORDERED that the motion, pursuant to CPLR 3212, of defendants George Dellapa, Elissa Winzelberg, Sycamore Development Group, LLC, Sycamore Kent Group, LLC, and 139 Emerson Place, LLC is granted, solely to the extent that the third and fourth causes of action in the complaint are dismissed as against said defendants, but is otherwise denied; and it is further

ORDERED that the motion, pursuant to CPLR 3212, of defendants 970 Kent Avenue Associates, LLC, CPCR Opportunities Fund, LLC and CPC Resources, Inc. is granted and the complaint is hereby severed and dismissed as against said defendants, and the Clerk is directed to enter judgment in favor of said defendants; and it is further

ORDERED that within 30 days of entry of this order, defendants 970 Kent Avenue Associates, LLC, CPCR Opportunities Fund, LLC and CPC Resources, Inc., shall serve a copy upon all parties, with notice of entry.

ORDERED that the remainder of the action shall continue.