Opinion
No. 31701–2008.
2010-12-14
David WENGER, Plaintiff, v. L.A. WENGER CONTRACTING CO., INC., and Louis Wenger, Defendants.
Joseph Cooke, Esq., Woodbury, NY, Attorney for Plaintiff. Eliot F. Bloom, Esq., Mineola, NY, Attorney for Defendant.
Joseph Cooke, Esq., Woodbury, NY, Attorney for Plaintiff. Eliot F. Bloom, Esq., Mineola, NY, Attorney for Defendant.
EMILY PINES, J.
DECISION AFTER TRIAL
In these two dissolution proceedings, joined for trial, along with claims for breach of fiduciary duty and counterclaims for unpaid rent, a father and son battle over two hotly contested issues: 1) whether Petitioner, David Wenger, is or is not a 31% shareholder of the various entities; and 2) if so, whether Petitioner can sustain a dissolution proceeding under Business Corporation Law § 1104–a. The trial occurred over six days, during which six witnesses, including two experts, testified and 258 exhibits were offered, and mostly admitted, into evidence. The Court had the opportunity to adjudge the credibility of the witnesses in light of the significant amount of documentation presented.
David Wenger asserts that he is a 31% shareholder of each of the five named corporations (one is a limited liability company) herein and that his father's oppressive conduct in diverting corporate assets for personal use, and denying him access to corporate books, records and business activities, entitles him to dissolution, an accounting and distribution to him of his respective share. Louis Wenger denies that his son ever became a 31% shareholder of LA Wenger Contracting Co, Inc (nor of the other corporations which are derived solely from the assets of the first) both because the respective shares of two other purported shareholders named in the original Articles of Incorporation bar such a finding and because the vehicle utilized to transfer shares to David Wenger, known as a Grantor Retained Annuity Trust (“GRAT”), failed for lack of compliance with federal and state law. Even assuming his son can prove entitlement to shares, Louis Wenger asserts that the actions of David Wenger and his wife in transferring LA Wenger corporate property to effectively hide it from a judgment creditor acts to equitably estop the Petitioner from accomplishing the statutory remedy of BCL § 1104–a dissolution.
David Wenger testified that he joined LA Wenger Contracting Co, Inc. (“LA Wenger”) owned by his father, Louis Wenger, in 1985, as his first job out of college. He began as an assistant supervisor of the corporation's extensive construction work, was promoted to project manager and, after approximately ten years, to Vice President. In that role, David Wenger asserts that he oversaw multiple construction projects, reviewed subcontractors and suppliers' invoices and was given corporate check signing authority. In 1995, David Wenger became a personal guarantor on several lines of credit given to the corporation. By the late 1990's he claims that LA Wenger had a credit line of approximately 100 million dollars. He avers that when he joined L A Wenger, it owned real estate and that it had purchased a number of properties, including buildings leased to the federal postal authority throughout New York, residential properties on Fire Island, and a Babylon commercial headquarters building, which eventually moved to 770 Railroad Avenue. According to David Wenger, in addition to his other duties, he negotiated the terms of leases with tenants, modified spaces and collected rents. He described commercial leases he negotiated for tenants at 770 Railroad Avenue; four leases with the postal service; and residential leases for 1 and 5 Ocean Road, in Ocean Beach, 610 Shore Walk in Fire Island Pines, 260 Willmot, 332 Denhof, 1517 Surfview, 300 Cottage Walk and 823 Evergreen, all in Fire Island.
David Wenger testified that he and his father discussed David becoming a shareholder of LA Wenger in 1996. Thereafter, Louis met with his personal and corporate attorneys and the law firm of Katz and Bernstein drew up documents to create a GRAT, which his father told him was a method of avoiding taxes upon the transfer of corporate shares. He and his father understood that over a period of four years he would become a 31 % shareholder of LA Wenger. Petitioner's 1, the GRAT document, calling for the transfer of shares over a four year period, was signed by Louis Wenger. The action was memorialized by a Board of Directors meeting dated January 2, 1996 (Petitioner's 2). Petitioner's 3, the LA Wenger Stock Certificate Book shows the issuance of 5550 shares to Louis Wenger, marked “canceled”; 1665 shares to the Louis Wenger GRAT, 55.5 shares issued to David Wenger and 3829.5 shares issued to Louis Wenger. These documents are signed by both Louis Wenger and David Wenger and dated January 2, 1996.
According to David Wenger, his father filed a Gift Tax Return in 1996 demonstrating Louis Wenger's gift of the GRAT (Petitioner's 4). The LA Wenger corporate tax returns from 2000 through and including 2009 (Petitioner's 10 through Petitioner's 18) list Louis Wenger as 69% shareholder and David Wenger as 31% shareholder. In addition, David Wenger's K–1's which flow directly from the corporate returns since L A Wenger is a Subchapter S corporation, set forth that David Wenger is a 31% shareholder of L A Wenger (Petitioner's 173). As set forth in Petitioner's post trial Memorandum of law, even after this action was commenced, the corporation continued to file corporate returns and issue K–1's evidencing the same percentage ownership of L A Wenger.
In 2000, following LA Wenger being declared in default on a major Transit Authority construction project, the surety (Seaboard) sued both LA Wenger as well as Louis and David personally. According to David, he and his father discussed transferring the real properties owned by L A Wenger to new corporate entities to avoid any ultimate debt from the lawsuit attaching to the properties. It was then, between 2000 and 2002, that the four other corporations, that are the subject of these lawsuits, were formed: Railroad Realty Group, Inc. on 12/28/01 (Petitioner's 21); ECS Realty, Inc. on 10/31/00 (Petitioner's 22); GDS Realty Group, Inc. on 12/28/01 (Petitioner's 23); and Woodglen Realty, LLC. on 4/8/02(Petitioner's 24). By the time these corporations were formed, David Wenger asserts he was already 31% shareholder of L A Wenger, and he and his father agreed that he would be 31% shareholder of the four corporations which held property formerly owned by L A Wenger. According to David Wenger, the surety ultimately learned of the transfers and threatened to go after the real properties; however, due to his hard work, the matter was settled, the surety was paid several million dollars and the properties were saved as corporate assets. According to David Wenger, by 2002, Woodglen owned three of the post office buildings; Railroad Realty owned one post office building and 770 Railroad Avenue; ECS owned five beach properties; and GDS owned a beach property and a condominium in Palm Beach. The LLC tax returns for Woodglen Realty from 2002 through 2007 name Louis Wenger as 69 % shareholder and David Wenger as 31% shareholder; the 2008 and 2009 Woodglen returns name Louis Wenger as 69% shareholder. For each year from 2000 though 2009, David Wenger received and filed K–1's from Woodglen's accountant which he filed, naming him 31% member of the LLC (Petitioner's 89–101). The corporate tax returns for ECS as well as the K–1's for that corporation name David Wenger as 31% shareholder (Petitioner's 57, 58, 60, 62, 64, 65, 67, 69). The GDS corporate returns all name David Wenger as 31% shareholder (Petitioner's 71, 72, 73, 75, 77, 79, 81, 83, 85).
According to David Wenger, although he was listed on all corporate tax returns and K–1's of these five corporations as a 31 % shareholder, he never received distributions from any of the corporations, while a review of the personal bank accounts of Louis Wenger demonstrates that Louis received literally hundreds of thousands of dollars between May 2001 and April 2007 from both the corporations and from lessees that he did not share pro rata with Petitioner. He pointed to approximately $298,000.00 in distributions to Louis Wenger during the period he was a 31% shareholder from L A Wenger, Woodglen Realty, ECS, Railroad Realty, and various Lessees of the same (Petitioner's 159). In addition to the distributions in which he did not share, Louis Wenger transferred one L A Wenger's real properties to David Wenger's sister in 2007, without his knowledge or consent (Petitioner's 25–32 and Petitioner's 105).
David Wenger also testified that Louis Wenger exercised poor judgment in his handling of several lawsuits, resulting in damage to the corporate assets. He claims Louis failed to settle a case against a subcontractor, Affiance Electric, allegedly causing a corporate expenditure of over $600,000 to be paid. David Wenger's review of bank records leads him to believe that much of the $600,000 was paid from funds Louis Wenger received form David's wife, Wendy Wenger, as payment on a promissory note rather than through corporate funds. LA Wenger, at David Wenger's suggestion sued a surveyor (Lovell and Belcher) successfully winning $385,000 which was paid in 2003 (Respondent's Aaa). He was not told how the money was utilized. LA Wenger brought another successful lawsuit against one of its subcontracting parties and won a settlement of $750,000 (Petitioner's 118) and Petitioner believes he is entitled to 31% of the same.
In addition to the above, David Wenger testified that Louis Wenger sold the corporate headquarters of L A Wenger; that he was asked as a shareholder and did consent to the sale (Petitioner's 115); however,$50,000 of the monies were released to L A Wenger without his knowledge or consent; he claims his share of the remainder of the proceeds, being held in Louis Wenger's attorney escrow account. Without his consent, in addition, Louis Wenger, gave $140,513.00 to his sister (David's aunt) from the corporate account (Petitioner's 42); and gave a mortgage and note from GDS to a family friend (Petitioner's 104). Finally in 2008, Louis Wenger demanded that David Wenger relinquish his stock in all five corporations that are the subject of this lawsuit (Petitioner's 165).
Louis Wenger testified that he started his own construction business in 1949 and incorporated L A Wenger Contracting Co, Inc in 1955. At the time of the original incorporation, there were three equal shareholders, including Louis Wenger's accountant, George Lipp and his counsel, Leonard Weinstein (Respondent's Mmm). He stated that he is unaware of any subsequent documents amending the original Certificate. On the other hand, he testified at his deposition that he was the 100% shareholder of L A Wenger (p 46, l. 7); Wenger never identified Lipp or Weinstein as shareholders on any documents given to the various surety companies that bonded the corporation's construction jobs over the years; and through 1996, Louis Wenger was the only shareholder listed on LA Wenger's corporate tax returns. A 1975 amendment of the corporation's Certificate of Incorporation changes the originally authorized and issued shares from 200 to 10,000, and, in addition, it sets forth that Louis Wenger is the sole shareholder thereof (Petitioner's 176). When Louis Wenger signed the GRAT in 1996, he represented to the attorneys preparing the same that he was the 100% shareholder of L A Wenger (Petitioner's 1).
According to Louis Wenger, he began purchasing real property through the LA Wenger corporation, as he learned of opportunities through his construction practice. For example, the corporation purchased four buildings that were leased to the federal government as post offices, located in Bridgehampton, Woodbury and Glenwood Landing, Long Island and one located in Arcade, near Buffalo, New York. L A Wenger purchased a residential property on 114 Ocean Road in Ocean Beach, which Louis Wenger later transferred to David Wenger's wife, Wendy Wenger. Although L A Wenger gave Wendy Wenger a $200,000 mortgage for the property, he asserts it has not been paid and is the subject of a mortgage foreclosure proceeding before another Court (Respondent's B). 300 Cottage Walk was purchased by LA Wenger as part of a tax exchange; 1517 Surfview was purchased, according to the witness, approximately 30 years ago and has five year round apartments; the other Fire island properties, his corporation purchased and sold as part of its ongoing business. Louis Wenger claims that in the 1960's and 1970's the corporation had over twenty employees, including those who worked in the office and those who provided construction labor for corporate jobs. Louis Wenger asserts that David began working for the corporation in college and then on a permanent basis. He borrowed $50,000 from LA Wenger to purchase his first condominium and has never paid any of the money back. With regard to the property located at 770 Railroad Avenue, which eventually became the LA Wenger corporate headquarters, Louis Wenger states that the property came to the corporation as part of an exchange of the old office complex as well as a payment of $275,000 to a corporation called Matrix, which was owned by David Wenger. Although Matrix was to repay that amount to LA Wenger, Louis states that never occurred (Respondent's Zz).
With regard to the claims of L A Wenger's surety, Louis asserts he settled their $5.2 million claim for $4 million, and ultimately through mortgaging and selling the corporate properties, was successful in achieving a discontinuance of the action (Respondents' Kk, Ll, Nn). With regard to the other litigations involving L A Wenger, Louis Wenger testified that although he was successful in obtaining a settlement of the surveyor's suit for $385,000, he agreed to transfer that amount to Wendy Wenger (Respondent's Bbb) for ultimate repayment to the corporation, in order to avoid creditors. He asserts that he has received all but between $60,000 and $70,000 back from Wendy Wenger. Although Louis Wenger testified that this amount was still due and owing L A Wenger from the successful settlement of the lawsuit against one of the surveyor's, several checks adding to approximately $67,000 were distributed to LA Wenger, its attorney, Seymour Pienkny, and ECS from accounts kept by Wendy Wenger and categorized as deriving from the Lovell and Belcher settlement(Petitioner's 167, 169, 170, and 175).The lawsuit by Affiance Electric, which resulted in a verdict against Louis, David and the corporation, was, in Louis' opinion, incorrectly decided. In any case, as a business decision, he settled the matter for far less than the verdict. Louis Wenger asserts that the $750,000 settlement of the claim against one of L A Wenger's subcontractors was all utilized to pay corporate debt and the corporation's attorneys.
Louis Wenger claims, in addition, that David Wenger agreed to lease 50 square feet of space for a separate corporation, LD Wenger, owned entirely by David Wenger, and has never paid ECS Realty, one of the Wenger corporations, a single dollar of rent during the four years the corporation remained in the space (Respondent's G). That was, in part, his rationale for selling the property at 770 Railroad Avenue, from which he asserts he desired to pay off corporate debt. He claims David Wenger was aware of the sale as a large sign was posted in front of the property. The ultimate contract of sale, dated 12/3/08, names Louis and David Wenger as the sole shareholders of LA Wenger Contracting Co, Inc and states that they consent to the sale of the 770 Railroad Avenue property (Petitioner's 115).
Although Louis Wenger admits that he understood in 1996 when he signed the GRAT documents that 31% of the shares of LA Wenger were to be transferred to David Wenger, he alleges that such was contingent upon David Wenger paying $200,000 per year for a period of four years to the corporation. He did sign a Gift Tax Return in 1996 demonstrating a gift of $621,660 given by him, which amount is the identical value as set forth in the GRAT as the value of 31% of the shares of L A Wenger. In addition, although Louis Wenger claims that the Trustee never received the monies, L A Wenger's corporate tax returns for the period 1997, 1998 and 1999 set forth that $800,000 in corporate distributions were made (Petitioners' 6–8). He also admits that the 2000 corporate tax return sets forth David Wenger as the 31% shareholder and Louis Wenger as 69% shareholder (Petitioner's 9). Although 32 corporate tax returns have also been filed for ECS, RRR GDS and Woodglen, stating that David Wenger is the 31% shareholder thereof (Petitioner's 31–34), Louis Wenger believes he is the 100% shareholder since the assets of those corporations came from L A Wenger and the GRAT failed due to failure to comply with its terms.
In handwritten notes dated 3/20/07, Louis Wenger lists the name of David Wenger and himself under the handwritten category of “loan from shareholders” concerning real property owned by GDS (Petitioner's 179). On 11/30/06, Louis Wenger signed a resolution from the ECS corporation in a loan document, swearing that David Wenger was a shareholder of that entity(Petitioner's 114). In addition, in 2005, after David Wenger and Louis Wenger began to have financial disputes regarding disbursements from the various corporations, Louis Wenger sent David Wenger correspondence demanding that David Wenger transfer his interests in L A Wenger, Railroad Realty, ECS, GDS, and Woodglen to Louis Wenger (Petitioner's 165).
Wendy Wenger testified regarding the opening of accounts in her name and ultimate disbursement of the monies received from the settlement of the Lovell and Belcher lawsuit. According to Wendy Wenger, she took the monies at Louis Wenger's direction and opened four accounts under her name to be disbursed at Louis Wenger's direction. Although she understood these were not her monies and she had no intention of keeping any of the funds, she did not understand at the time that these were corporate funds. She claimed that her instructions came from Louis Wenger through her husband, David Wenger. She testified that all the monies were distributed and none now remain, as per the directions of Louis Wenger. She signed all the checks as directed in blank and did not participate in naming the payees, which constituted the corporations and corporate attorney (Petitioner's 166–170). She also admits that she understood at the time that she was, in essence, keeping the monies out of the reach of various creditors.
Seymour Pienkny testified that he has been the attorney for LA Wenger Contracting Co and for Louis Wenger since then 1960's. He agrees that he was the designated Trustee of the GRAT, which he signed and executed in that role on January 2, 1996. However, he claims that he never received the shares of L A Wenger; he never received the $800,000 in funds identified in the GRAT; he never opened a bank account for the GRAT as Trustee; and he was never asked by Louis or David Wenger, prior to this litigation, about his activities as Trustee of the GRAT.
Ronald Eager, a CPA since 1991, testified as an expert regarding the validity of the GRAT, on behalf of David Wenger. He claims that the GRAT is an irrevocable trust utilized by family members to transition assets of the grantor to the next generation and avoid high rate estate taxes. In his opinion, after reviewing the document (Petitioner's 1) it required that Louis Wenger contribute 30% of his interest in L A Wenger to the Trust in exchange for four years of annuity payments in the annual amount of $200,000. The funding for the GRAT does not, in his opinion, come from the donee, David Wenger, but, rather, from the value of L A Wenger's corporate stock. He reviewed the corporate resolutions in Petitioner's 2, in which 1665 shares, 30% of the totally issued shares of the corporation (5550) were given to the GRAT. This is further supported by Petitioner's 3, which demonstrates that David Wenger was issued 55.5 shares (1%), that 1665 shares were given to the GRAT (30%) and that 3829 shares (69%) were issued to Louis Wenger. When compared to the 1996 Louis Wenger Gift Tax Return (Petitioner's 4), the same result is reached. According to the witness, Petitioner's 4 demonstrates that Louis Wenger is credited with gifts of $621,660 (the precise value set forth in the GRAT of 1665 shares of stock in LA Wenger) and $32,500 (the precise value of 55.5 shares of stock in LA Wenger), the above amounting precisely to 31% of the total issued shares of 5550. His view that the GRAT was successfully accomplished is further supported by Petitioner's 9, constituting the 2000 corporate tax return and Petitioner's 173, David Wenger's year 2000 K–1, both of which list him as a 31% shareholder of LA Wenger.
Based upon information given to him by Petitioner's counsel, stating that the GRAT was not finally issued until 1997, Mr. Eager found that the corporation's 1997, 1998 and 1999 tax returns all set forth property distributions, which, if totaled, equal the required $800,000 as set forth in the GRAT document (Petitioner's 1). According to Mr Eager, the distributions were not made by the actual transfer of cash from the corporation to the GRAT, since the corporation did not have sufficient cash to write checks in the necessary amounts. Rather, they were charged to shareholders' loan accounts, akin to a journal entry. He stated that did not in any way impede the validity of the transfer. Finally, he averred that the GRAT document never required that the Trustee get physical possession of the stock certificates. In his opinion, the GRAT was properly formed, executed and funded.
David DePinto, who holds an MA in taxation and a J D with a specialization in trusts, testified as an expert on behalf of Louis Wenger. He stated that a GRAT is a trust through which the Internal Revenue Code permits the value of the retained interest to be ignored for taxation purposes, as long as it constitutes a gift going to a family member. IRC § 2702. He believes the GRAT as set forth in Petitioner's 1 was properly formulated; however, to be effective, he states its terms must be properly effectuated under both federal and state law. Thus, under EPTL § 7–1.18 the trust is only valid to the extent that it is physically funded with property; otherwise, according to the witness, it is a sham. In this case, the GRAT must fail because the Trustee never received any trust property.According to the witness, the GRAT (Petitioner's 1) does not make the annual annuity payment of $200,000 precatory; rather, it states that such amounts “(s)hall be paid”. With regard to the federal requirements, the witness opines that the Internal Revenue Code would require that once amounts are delivered to the GRAT, the GRAT be issued K–1's for the years that it held the transferred property. This never occurred. He also stated that the so-called journal entries would not suffice under the tax code as constituting a transfer. Once payment is not made during the period set forth in the GRAT, he argued that the stock certificates must be returned to the grantor; i.e., Louis Wenger, in this case.
ANALYSIS
EPTL § 7–1.18 provides, in relevant part, that a lifetime trust shall be valid as to any assets ... to the extent the assets have been transferred to the trust ... (a)transfer is not accomplished by recital of assignment ...”
Business Corporation Law § 1104–a, enacted, in part, to provide a mechanism in closely held corporations, to meet the reasonable expectations of minority shareholder, provides, in pertinent part:
“(a) The holders of twenty percent or more of all outstanding shares of a corporation, other than a corporation registered as an investment company ..., may present a petition of dissolution on one or more of the following grounds:
(1) The directors or those in control of the corporation have been guilty of illegal, fraudulent or oppressive actions toward the complaining shareholders;
(2) The property or assets of the corporation are being looted, wasted, or diverted for non-corporate purposes by its directors or those in control of the corporation.”
In determining whether a Petitioner is, in fact, a qualifying owner of the requisite percentage of shares necessary to invoke the BCL § 1104–a remedy, the Court must look to any agreements that existed between the alleged shareholder and the majority shareholder(s) of the corporation; what consideration, if any, was provided for the alleged stock ownership; whether any stock certificates were, in fact made out in the name of and/ or delivered to the alleged shareholder, as well as documents such as corporate tax returns and K–1's for the period in question. See, Capiozola v. Vantage International Ltd, 2 AD3d 843, 770 N.Y.S.2d 395 (2d Dep't 2003). It has been held that BCL § 1104–a was enacted with the minority shareholder of a closely held corporation in mind, since such are unlikely to obtain gains from the sale of shares and look to their roles and participation in the closely held entity as their general and/or sole source of income. See, Kemp v. Beatley, 64 N.Y.2d 63, 473 N.E.2d 1173, 484 N.Y.S.2d 799 (1984). Thus, where the majority's actions can be reasonably viewed as thwarting the minority's legitimate expectations in joining the closely held venture, oppressive conduct, as required under the statute, can be found. Id.
The reasonable expectations of the minority shareholder, in this context have been held to include, inter alia, a reasonable expectation of a job, a share of corporate earnings and a say in the running of the corporation's management. Autz v. Fagan, 16 Misc.3d 1140(A), 851 N.Y.S.2d 56 (Sup Ct Nassau Co, Austin, J 2007).
Even in those instances where a petitioner can demonstrate oppressive conduct under BCL § 1104–a, the Court is not limited to ordering a dissolution of the corporation. Rather, the Court is directed to view the totality of the circumstances in order to determine whether a remedy short of dissolution can be found to satisfy both the Petitioner's rightful expectations and the rights and interests of the majority. Matter of Kemp & Beatley, Inc, supra. Thus, the Court is afforded broad latitude in fashioning an alternative remedy, such as one requiring a buyout of the Petitioner's interest even if the Respondents had not set forth their statutory right to do so under BCL § 1118. Id.; Matter of William Harris, 118 A.D.2d 646, 500 N.Y.S.2d 5 (2d Dep't 1986); Matter of Wiedy's Furniture Clearance Center Co Inc., 108 A.D.2d 81, 487 N.Y.S.2d 901 (3d Dep't 1985).
A party to a litigation is equitably estopped from taking position that is contrary to that taken in an income tax return. Mahoney–Buntzman v. Buntzman, 12 NY3d 4125, 909 N.E.2d 62, 881 N.Y.S.2d 369 (2009).
Applying the law as set forth above to the facts of this case as presented to the Court, the Court makes the following findings. The GRAT, as set forth in Petitioner's 1, failed under State law, since it was never properly funded. As set forth so articulately by Mr. DePinto, the GRAT provides significant tax relief to the estate of the donor; thus, it must be based on a real transfer of assets into the trust; otherwise it is a sham. However, both Louis Wenger and the five corporations that are the subject of these combined lawsuits are equitably estopped from denying David Wenger's position as a 31% shareholder. Nine years of corporate tax returns filed by the five corporations as well as corporate K–1's given to David Wenger by those entities, many of which are beyond the reach of the IRS at this point, cannot be ignored. When combined with the clear intent set forth in Louis Wenger's years of actions, the statements by Louis Wenger to sureties and lenders to the corporations, and the numerous correspondence, including that written after the parties were in dispute (Petitioner's 165) cannot be ignored. All the corporations and their majority shareholder, Louis Wenger, acted for years as though and for their mutual advantage, David Wenger was a 31% share holder. The Court finds that he remains so to this date. The Court, therefore, agrees with Petitioner's counsel that the validity of the GRAT at this point is irrelevant. See, Nassau Trust Co v. Montrose Chemical Products Corp, 56 N.Y.2d 175, 451 N.Y.S.2d 663, 436 N.E.2d 1265 (1982).
David Wenger, as Louis Wenger's son, and the minority shareholder of closely held corporations, one of which he entered directly after college, and the others he helped form, has met the requirements to demonstrate “oppressive conduct” under BCL 1104–a. He was brought in as an employee to a business owned solely by his father; he held no other positions; he became an officer and shareholder of the corporations; he was involved in the daily business of the same, and became personally liable on corporate lines of credit. The Court finds that Louis Wenger acted improperly as soon as David Wenger began to question Louis Wenger's handling of the corporations' finances; essentially demanding that he turn over his interests in corporations holding over $10 million in assets for $10 (Petitioner's 165). In addition, the act of transferring a corporate property to David Wenger's sister, without informing David Wenger or his consent, of taking the $50,000 from the sale of 770 Railroad Avenue without David Wenger's consent; and other similar actions all constitute sufficient actions to bring this case within the rubric of BCL § 1104–a. In this vein, the Court does not find that David Wenger is estopped from bringing this action, which is one based on statute and not in equity, as a result of his participation in questionable actions. It appears to the Court that Louis Wenger and David Wenger acted on more than one occasion, in concert, to transfer both real properties and cash out of one corporate entity to another or to another person, in order to avoid the claims of creditors. Ultimately, each of these creditor's claims was satisfied via settlement of their actions and/or judgments. As the parties acted in concert, the Court will not permit Louis Wenger to utilize these incidents to avoid a finding of “oppression” under BCL § 1104–a.
As set forth in the case law above, this is a case, where dissolution does not appear to the Court to be in the best interests of the majority shareholder, who has reached 87 years of age, nor is it the only solution to provide the minority shareholder with his due, in view of the significant amount of real property held by the five subject corporations. Petitioner's counsel has recommended an alternate remedy, which the Court adopts, in part. Under the circumstances, by appraising the net values of the real properties in question; transferring sufficient real property and cash from the escrow account holding the proceeds of the sale of 770 Railroad Avenue so that David Wenger or his designee receives 31% of the net value of such properties and cash, the Court finds that David Wenger's claims will be satisfied without the need for the drastic remedy of dissolution. In order to accomplish such task, the Court is appointing Robert Lynn, Esq., by separate order, as a Temporary Receiver, with limited powers, to retain a real estate broker; and to obtain the net values of the real properties (taking into account all mortgages and liens) on the real properties currently held by the five corporations that are the subject of these proceedings. To this will be added the net value of the real property transferred without David Wenger's consent to his sister located in Palm Beach, Florida and the amount of $50,000 removed by Louis Wenger from the proceeds of the sale of 770 Railroad Avenue. The Court determines the net value of the Florida property, based on appraisals placed into evidence by both parties to be $150,000 (Petitioner's 186), since such was the appraised value at the time of the improper act of transfer. After calculating the 31% figure, the Temporary Receiver will have the authority to choose a property or properties, other than that located in Palm Beach, Florida and owned by David Wenger's sister, to transfer to David Wenger or David Wenger's designee, utilizing the remains of the escrow account, if necessary.
In making this determination, the Court is not awarding either party damages for their other claims or counterclaims. While it appears that Louis Wenger transferred funds from the various entities, and failed to disclose his activities to his co shareholder, he also was the person who created the original entity over 60 years ago and who has spent a great portion of his 87 years and effort to create and run the construction business as well as to purchase valuable properties. In addition, the amounts set forth in Louis Wenger's counterclaim as well as Louis Wenger's testimony concerning the unpaid amounts loaned to David Wenger to purchase his first condominium and the monies paid to the Matrix entity, owned solely by David Wenger and never repaid to LA Wenger do balance in the Court's opinion, the benefits both parties received at the expense of the other. In addition, the Court finds that L A Wenger was repaid in full the $385,000 transferred as a result of the settlement of the Lovell and Belcher lawsuit and no more is due and owning from David Wenger or his wife. With regard to David Wenger's plaints concerning the handling of the other lawsuits including the one resulting in the judgment from the surety, Seaboard, and the settlement with Alliance Electric, the Court does not find that such constituted any sort of breach of fiduciary duty or oppressive conduct, as it is always easier with hindsight to criticize the way a litigation has been handled after the result is known. The Court also found credible that Louis Wenger utilized the proceeds of its lawsuit against its subcontractor, the $750,000, to pay off corporate debt. Accordingly, the relief afforded David Wenger will constitute solely of 31% of the net value of the real properties held by the five corporations and the Palm Beach property transferred to his sister, plus 31% of the cash currently held in escrow from sale of the office building at 770 Railroad Avenue, and 31% of $50,000 improperly removed from escrow. Before the cash is distributed to the parties, it shall be utilized to pay the expenses of the Receiver, and the real estate broker each party contributing in proportion to their share of the funds. Each party may utilize the remainder of its share to pay outstanding attorney's fees.
This constitutes the DECISION and ORDER of the Court.