Opinion
05-21-2024
In the Matter of Jack YEDID etc., Petitioner-Respondent, v. Mitchell SORKIN etc., et al., Respondents-Appellants, SY and SY PTC LLC etc., Respondent. In the Matter of Jack Yedid etc., Petitioner-Respondent, v. Andrew W. Heymann etc., et al., Respondents-Appellants, SY and SY PTC LLC etc., Respondent.
Augustine Law PLLC, New York (Joseph P. Augustine and Mark J. Eberle of counsel), for appellants. Benesch Friedlander Coplan & Aronoff, New York (Edward C. Wipper of counsel), for respondent.
Augustine Law PLLC, New York (Joseph P. Augustine and Mark J. Eberle of counsel), for appellants.
Benesch Friedlander Coplan & Aronoff, New York (Edward C. Wipper of counsel), for respondent. Kern, J.P., Oing, Kapnick, Higgitt, Michael, JJ.
Order, Supreme Court, New York County (Melissa A. Crane, J.), entered on or about September 8, 2023, which, insofar as appealed from, denied respondents Andrew W. Heymann, Mitchell Sorkin, and Eli Yedid’s (respondents) motion to dismiss the petition under index no. 161033/21 (the 2021 proceeding) pursuant to CPLR 3211(a)(3), (5), and (7) and granted petitioner’s cross-motion to amend the petition, unanimously modified, on the law, to grant the motion to dismiss so much of the petition for damages (including punitive damages) against Sorkin and Heymann for participating in the ouster of petitioner from nonparty Cutie Pie Baby, Inc. (CPB), and any claims against Heymann with respect to the 2018 sale of interests in non-party TRB Acquisitions LLC, and otherwise affirmed, without costs.
Order, same court and Justice, entered on or about September 8, 2023, which, insofar as appealed from, denied respondents’ motion to dismiss the petition under index no. 152809/23 pursuant to CPLR 3211(a)(1), (3), (7), and (10) and granted petitioner’s cross-motion to amend the petition, unanimously affirmed, without costs.
[1] Respondents’ contention that petitioner lacks standing because the trusts of which he was a beneficiary (the Simon Trust and the Sandra Trust) have been decanted into another trust (the SY and SY Trust), of which he is not a beneficiary, does not warrant CPLR 3211 dismissal (see CPLR 7703; Surrogate’s Court Procedure Act § 103[39]; Matter of Kosmo Family Trust, 72 Misc.3d 1214[A], 2021 N.Y. Slip Op. 50745[U], *3, 2021 WL 3409360 [Sur. Ct., Albany County 2021], affd 207 A.D.3d 934, 172 N.Y.S.3d 501 [3d Dept. 2022]; see also Matter of Morse, 177 Misc.2d 43, 46, 676 N.Y.S.2d 407 [Sur. Ct., N.Y. County 1998]).
[2] The motion court providently exercised its discretion by granting petitioner leave to amend (see Verizon N.Y. Inc. v. Consolidated Edison, Inc., 38 A.D.3d 391, 830 N.Y.S.2d 902 [1st Dept. 2007]). Petitioner’s claim that the creation of the SY and SY Trust and the decanting of the Simon and Sandra Trusts’ assets into the new trust were wrongful does not "plainly lack[ ] merit" (id.).
[3] Contrary to respondents’ contention, petitioner’s requests for relief are not beyond the scope of CPLR article 77. "A special proceeding may be brought to determine a matter relating to any express trust," with exceptions not relevant here (CPLR 7701; see also Matter of Greene v. Finley, Kumble, Wagner, Heine & Underberg, 88 A.D.2d 547, 547-548, 451 N.Y.S.2d 741 [1st Dept. 1982]).
[4] The portion of the 2021 proceeding that seeks damages against Sorkin and Heymann for participating in the ouster of petitioner from CPB is not barred by res judicata, because this issue was not decided in a prior arbitration commenced by petitioner (see Rembrandt Indus., Inc. v. Hodges Intl., Inc., 38 N.Y.2d 502, 504, 381 N.Y.S.2d 451, 344 N.E.2d 383 [1976]; see also Matter of Cine-Source, Inc. v. Burrows, 180 A.D.2d 592, 594, 581 N.Y.S.2d 9 [1st Dept. 1992]). In the prior arbitration, the arbitrators could decide "[a]ny controversy or claim arising out of or relating to the [CPB Shareholders’] Agreement." However, the issues of whether Sorkin allowed the late Simon Yedid (decedent) to violate the agreement for his trust or whether Heymann aided and abetted voting that was impermissible under the trust agreement were not before the arbitrators. Nor is the claim for damages against Sorkin and Heymann for participating in petitioner’s ouster barred by collateral estoppel (see Melcher v. Greenberg Traurig LLP, 135 A.D.3d 547, 553, 24 N.Y.S.3d 249 [1st Dept. 2016]).
[5] However, so much of the 2021 proceeding as seeks damages against Sorkin and Heymann for participating in petitioner’s ouster is barred by the doctrine against double recovery (see Zarcone v. Perry, 78 A.D.2d 70, 79, 81, 434 N.Y.S.2d 437 [2d Dept. 1980], aff'd on other grounds 55 N.Y.2d 782, 784, 447 N.Y.S.2d 248, 431 N.E.2d 974 [1981], cert denied 456 U.S. 979,102 S.Ct. 2248, 72 L.Ed.2d 855 [1982]). Petitioner was compensated for his ouster from CPB by being awarded millions of dollars by the arbitrators, and the arbitral award has been paid in full.
[6] Petitioner now alleges that his ouster violated the Simon Trust agreement, whereas he argued in the arbitration that it violated the CPB shareholders’ agreement and the Business Corporation Law. However, in opposition to respondents’ motion to dismiss, he failed to articulate how his damages as a trust beneficiary differ from his damages as a CPB shareholder, officer, and director. In addition, petitioner’s suggestion, on appeal, that his injuries in his capacity as a remainder beneficiary of the Trusts include diminution of the value of the CPB shares held by the Trusts is speculative. Petitioner’s position assumes that CPB would have performed better if he had not been ousted. However, on petitioner’s application for injunctive relief in the arbitration, the arbitrator decided that returning him as officer and director and manager of CPB would "create a disastrous and explosive environment that could only destroy the ongoing business and materially impair the monetary value of [his] 33% equity in CPB." Equally speculative, petitioner also claims that as beneficiary of the trusts, he is entitled to disgorgement of any profits earned by Heymann and Sorkin as a result of the allegedly illegal voting scheme. However, petitioner failed to establish the nature of such profits.
[7] Since we have found that petitioner may not pursue his substantive claim related to his ouster from CPB in this article 77 proceeding, he may not obtain punitive damages on that claim. His contention that he could not have obtained punitive damages in the arbitration is unavailing. The arbitration was governed by the Federal Arbitration Act (FAA); thus the arbitrators could have awarded punitive damages (see Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 63-64, 115 S.Ct. 1212, 131 L.Ed.2d 76 [1995]; Matter of Flintlock Constr. Servs., LLC v. Weiss, 122 A.D.3d 51, 54-55, 991 N.Y.S.2d 408 [1st Dept. 2014], appeal dismissed 24 N.Y.3d 1209, 4 N.Y.S.3d 590, 28 N.E.3d 25 [2015]). However, to the extent petitioner’s request for punitive damages is based on the TRB transaction and/or the decanting scheme, it is not barred by "the narrow doctrine against splitting a cause of action" (Melcher, 135 A.D.3d at 552, 24 N.Y.S.3d 249).
Respondents correctly contend that the claims against Heymann with respect to the TRB transaction should be dismissed because it is undisputed that he was not a trustee of the Simon Trost at the time of the transaction. To the extent the original and amended petitions in the 2021 proceeding assert claims against Heymann individually, and allege that he drafted the paperwork for the TRB transaction, the petitions do not articulate a basis for holding him individually liable.